Trump Sermon To The Davos K-Shaped Faithful

Davos Legitimacy In The Spotlight

At the World Economic Forum (WEF) in Davos last week, Trump asserted the dominance of the U.S. military, economy, stock market, and borders. However, his underlying message was the demise of globalisation.

The capitalist system embodied by the WEF is facing a legitimacy crisis.

Davos typically functions as a gathering of elites seeking to influence global priorities.

They defend their modern capitalist approach by citing macroeconomic indicators such as GDP growth, market capitalisation, and stock indices. They argue that in a growing economy, all participants will ultimately benefit.

Larry Fink (BlackRock) observed that since the fall of the Berlin Wall, more wealth has been generated than in all of previous human history, with much of it accumulating among the 1% who attend Davos.

Fink’s statement underscores an increasing awareness of wealth disparity and highlights a problem that can no longer be ignored.

Davos Modern Capitalism Is Not Working For Everyone

There is a declining public belief in the narrative that has supported the modern capitalist model advocated by elites.

For 80% of Western society, economic success has become something they read about rather than something they experience.

The narrative is losing public consent, and the discontent can no longer be dismissed as temporary noise.

Trump, with one eye on the mid-term elections, knows that better than most.

Personal consumption in the U.S. makes up 68% of all economic activity. The top 10% of income earners account for 50% of total consumer spending.

The top 10% also own 93% of stocks, even with market participation at a record high.

The bottom 60% of households collectively account for less than 20% of consumer spend.

Housing, education, and healthcare have become far more expensive in the last 5 years.

Economic Invisibility

Millions of Americans are becoming economically invisible. There is a risk that their economic hardship will be overshadowed by the consumption of a small minority.

Such economic disparities may pose a risk to social cohesion.

In response, Treasury Secretary Bessent has signalled that he wants a Treasury more focused on economic growth that supports households, consumers, and businesses, left behind in the K-shaped economic expansion.

The mid-term elections will likely signal how effective that approach is in addressing the “affordability” crisis.

S&P 500

We are about to enter earnings season. All eyes will be on earnings from AI-related stocks for the last quarter of 2025 and, importantly, on their 2026 guidance.

The S&P 500 is near record highs in both price and valuation.

Most investors don’t use stock valuations as a timing tool, and that makes sense.

Investors are more sensitive to earnings.

While we remain cautious about a short-term market correction, the balance of probability suggests we are unlikely to see a crash in 2026.

That said, we expect volatility in the S&P 500 in 2026 and gains to be subdued.