Innovation to Inflation: Back to the Future
Lessons From the 1980s for Today’s Investors
Roads? Where we’re going, we don’t need roads. That line from Back to the Future wasn’t about investing, but it could have been.
Imagine someone handed you tomorrow’s newspaper a year ago. The headlines would have warned of a Chinese AI surprise rattling Silicon Valley, sweeping tariffs, another year of war in Ukraine, conflict with Iran, renewed fears over oil prices, stubborn inflation, commercial real estate stress, cracks in private credit, and interest rates staying higher for longer. Most investors would have expected a recession, a bear market, or both.
Instead, the market did what it has done throughout history. It looked beyond today’s ominous headlines. Corporate earnings continued to grow. Consumers kept spending. Artificial intelligence unleashed one of the largest capital spending cycles since the internet. Businesses adapted. The S&P 500 is up nearly 9% year to date. (see chart) Investors who stayed disciplined were rewarded once again.
That shouldn’t have surprised us.
The 1980’s Playbook – Climbing a Wall of Worry
The 1980s gave us the Sony Walkman, Michael Jackson, Back to the Future, Ronald Reagan, the fall of the Berlin Wall, and enough acid-wash denim and shoulder pads to last a lifetime. It was a decade remembered for big personalities, rapid technological change, and unmistakable optimism.
Beneath the nostalgia, however, the economic backdrop was far less glamorous.
Inflation averaged more than 6%. The 10-year Treasury yielded roughly 10.5%. Thirty-year mortgage rates averaged nearly 13%. The economy endured two recessions. Iran dominated the headlines through the hostage crisis, the Iran-Iraq War, and repeated disruptions to oil markets in the Persian Gulf. The decade culminated with the 1987 stock market crash.
Yet despite every reason to remain cautious, the S&P 500 returned approximately 18% annually, including dividends.
History reminds us that bull markets aren’t born from perfect economic conditions. They emerge when innovation, productivity, and corporate earnings prove stronger than investors expected.
Every major bear market has eventually given way to new highs. The timing is never predictable. The long-term trend has been remarkably consistent.
Today’s Fed
Grab your flux capacitor! New Federal Reserve Chair Kevin Warsh has called for a “regime change” at the Federal Reserve after more than five years of inflation running above the Fed’s 2% objective and currently at 3.5% (BLS) He argues inflation has become “an unfair tax on American families and businesses” and has made clear the central bank remains committed to restoring price stability.
Few would disagree with that goal. The more interesting question is whether the economy itself has changed.
A growing number of economists argue that structural forces could keep inflation modestly higher than the post-financial crisis norm even after the Iran- Strait of Hormuz oil situation cools off. Inflation headwinds include:
- Persistent fiscal deficits and rising government debt
- Deglobalization and reshoring
- AI infrastructure and capital spending
- Aging demographics and tighter labor markets
- Rising defense spending
- Growing electricity demand and grid investment
These aren’t temporary shocks. They are long-term structural forces that place upward pressure on nominal growth and, potentially, inflation.
We’re no longer fighting the 9.1% inflation shock of 2022. If inflation ultimately settles closer to 3% than 2%, while unemployment remains low, productivity accelerates, corporate earnings continue to grow, and AI fuels a once-in-a-generation investment cycle, history suggests investors shouldn’t automatically assume that’s incompatible with a healthy economy or strong stock market.
Perhaps the bigger question isn’t whether the Fed can get inflation back to exactly 2%. It’s whether investors are anchoring to yesterday’s economy instead of recognizing tomorrow’s. Even today, CNN’s Fear & Greed Index sits squarely in “Fear.” Markets rarely wait for investors to feel comfortable before moving higher.
The New Investment Playbook
Markets repeatedly climb walls of worry while investors wait for certainty that never arrives.
Today’s economy has more than a little 1980s déjà vu. Inflation has retreated from its peak but remains above the Fed’s target, leaving policymakers cautious and borrowers wondering why mortgage rates remain elevated. The same disconnect existed in 1985. Inflation had fallen to just 3.6%, yet the average 30-year mortgage still hovered around 12.4%. Inflation can cool long before borrowing costs follow. The bond market remembers what consumers often forget.
The geopolitical soundtrack also feels familiar. Iran once again sits at the center of global headlines. Conflict in the Middle East, concerns over oil supplies, and renewed attention on the Strait of Hormuz continue to influence inflation expectations and market sentiment.
The differences, however, may be just as important.
The United States is now the world’s largest oil producer, giving the economy a cushion that simply didn’t exist during the Reagan years. Businesses are healthier. Consumers remain resilient. Artificial intelligence is driving what could become the largest productivity boom and capital investment cycle since the internet.
Every major technological revolution has felt uncertain while it was unfolding. (see chart) From television and the personal computer to the internet and now artificial intelligence, innovation has repeatedly reshaped the economy, expanded corporate earnings, and created long-term wealth despite wars, recessions, and market corrections.
History doesn’t repeat. It rhymes. Every generation believes its challenges are unique, yet innovation, productivity, and resilient businesses have repeatedly rewarded patient investors.
Whether inflation ultimately settles at 2%, 3%, or somewhere in between, the long-term drivers of wealth creation remain remarkably consistent. Businesses innovate. Productivity improves. Earnings grow. Markets adapt.
The market is a discounting machine. It prices tomorrow’s earnings, not today’s headlines.
Investors don’t get rewarded for waiting until uncertainty disappears. They get rewarded for recognizing that economies, businesses, and markets are often far more resilient than the daily news suggests.
Market Scorecard – Innovation to Inflation
The market has already begun writing its own version of this story. Despite the headlines, the first half of 2026 rewarded investors who stayed disciplined.
The S&P 500 gained approximately 9% (see chart) with balanced portfolios not far behind. More importantly, the rally broadened beyond a handful of mega-cap tech stocks. International equities, small-cap stocks, industrials, financials, and commodities all participated, a healthy sign for long-term investors.
Corporate America has continued to do its job. S&P 500 earnings have grown at a double-digit pace over the past year, supported by resilient consumer spending and a surge in AI-related capital investment. At the same time, bonds are once again providing meaningful income, with the Bloomberg U.S. Aggregate Bond Index yielding roughly 4.7% and investment-grade corporate bonds offering yields above 5%. For the first time in years, balanced portfolios no longer rely solely on stocks for returns.
None of this guarantees a smooth ride ahead. Valuations remain above historical averages. Inflation could prove stickier than expected. Geopolitical risks haven’t disappeared, and the Federal Reserve may not be finished.
But markets have never required perfect conditions.
One of the healthiest developments this year has been the broadening of market leadership. Unlike recent years when returns were concentrated in a handful of mega-cap technology companies, performance has expanded across asset classes. Commodities, small-cap stocks, emerging markets, international equities, and balanced portfolios have all delivered positive returns. Healthy bull markets rarely depend on one sector or one theme. They broaden over time.
That broadening is exactly what we’ve been waiting to see and is one reason we remain constructive on diversified portfolios heading into the second half of the year.
Looking Through the Windshield
There will no doubt be more periods of market volatility ahead. Conflict involving Iran remains a geopolitical risk. Investors will continue to scrutinize every Federal Reserve meeting. The November midterm elections will dominate headlines. And cocktail conversations will likely continue debating whether today’s AI boom resembles the dot-com bubble of the late 1990s. With valuations of mega cap tech stocks going down, it looks more like a healthy reset than setting up for a dotcom crash.
One of my favorite observations comes from futurist Roy Amara: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”
That perfectly describes today’s AI revolution.
Markets will continue to overreact to quarterly earnings, inflation reports, and the next move by the Federal Reserve. Some AI investments will disappoint. Some companies won’t justify the excitement. That has been true during every major technological revolution.
If artificial intelligence ultimately delivers the productivity gains many economists expect, investors may someday look back on this period much the way we now view the early internet or the personal computer revolution of the 1980s. Interestingly, many of today’s largest technology companies actually trade at lower valuation multiples than they did just a year ago because earnings have grown faster than stock prices. In other words, fundamentals have begun catching up with expectations.
The lesson from both decades is remarkably similar. Don’t confuse today’s headlines with tomorrow’s opportunity. Because the market has always been far more interested in the future than the news of the day.
The bottom line? The first half of 2026 rewarded investors who remained focused on long-term fundamentals rather than short-term fears. As we move into the second half of the year, remember that globally diversified portfolios were built for environments exactly like this.
From innovation to inflation tailwinds and headwinds, markets have always climbed walls of worry. History suggests patient investors have climbed with them.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.com.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
