AI-led productivity boom masks macro dangers: GSFM

Binaya Dahal

Journalist

7 May 2026

US equity markets may be brushing off mounting geopolitical tensions and sticky inflation fears, but GSFM investment specialist Stephen Miller says investors should not mistake resilience for complacency.

He argued that the market strength reflects macroeconomic data that has yet to signal a clear slowdown or fully capture the fallout from the Iranian conflict, with equities instead being driven by broader structural forces.

“At the forefront of these changes is the rapidity of technological advances,” Miller said. “The incorporation of AI into economic life will likely see massive productivity growth that can mitigate any adverse macro influences.”

Miller pointed to what he described as “US exceptionalism” in productivity growth, noting the country’s productivity has increased almost 7% since late 2021 while Australian productivity has fallen 4% during the same period

“That might in part explain why US equity markets are at record highs (despite an adverse prospective macro environment) and that is to some extent dragging the laggards with it,” he said.

He also argued investors has become conditioned by the unusually low interest rate and bond yield environment that followed the Global Financial Crisis and the pandemic, distorting perceptions of what “normal” looks like.

“Between 2000 and 2007 the average US 10-year bond yield was around 4.7 per cent,” Miller said. “That is a way north of where the current US 10-year bond yield is trading. In other words, current bond yields are not ‘high’ by historical standards.”

Despite that backdrop, Miller said markets are increasingly rewarding companies positioned to benefit from long-term technological change, particularly artificial intelligence, creating greater dispersion between winners and losers.

He said that environment strengthens the case for active investing over passive strategies, arguing skilled managers are better placed to navigate structural shifts. “That being the case, the returns from ‘good’ active management are accordingly higher compared with passively managed index funds.”

Domestically, Miller backed the Reserve Bank of Australia’s recent decision raise the cash rate in latest monetary policy board meeting and warned that another rate hike later this year remains possible.

“Inflation was already both too high and broad-based ahead of the Iran shock, even if the March quarter consumer price index (CPI) outcome was slightly less than feared,” he said.

“And despite that ‘better than feared’ March quarter outcome, newly issued RBA forecasts show a path for trimmed-mean inflation higher than forecast back in February.”

He attributed persistent price pressures to structural factors, including government spending, labour constraints and regulatory “creep”, arguing these forces are keeping policy rates higher for longer.

In the United States, attention now turns to Friday’s closely watched non-farm payrolls report, though Miller does not expect strong data to materially shift the Federal Reserve’s policy outlook in the near term.