Inflation and Impediments

November 2, 2026

Ahead of a very contentious and uncertain election, we view the risk environment with a substantial degree of caution. Pave’s model scores reflect a data-driven approach to the identification of alpha. In an environment of high volatility, short-term beta is likely to overwhelm any long-term alpha signal. We rely on our process and discipline of sound portfolio diversification and structure to see through these periods of high volatility.

Only two S&P 500 sectors tracked by Pave—Energy and Technology—show negative beta to CPI, while every sector shows positive beta to energy. With energy risk at the fore, measurable inflation drivers remain in place in the short term and are a primary concern among market participants. Pave’s models confirm these concerns, albeit with some nuance. The September PCE report, showing inflation at a 6.28% annualized rate, clearly reflects broad upward pressure on prices, with many line items posting annual growth rates two to three times higher than the Fed’s 2% inflation target. Whether driven higher by robust nominal growth, tariffs, or rising energy prices, those higher prices have been passed along to consumers.

Within the PCE report, consumption expenditures for durable goods declined in the month of September, reflecting caution among consumers for the purchase of big-ticket items. We track M2 velocity to help understand the transmission environment for inflation. In the first half of 2026, M2 velocity (simplistically the rate at which banks lend and people spend) steadily increased. Since mid-year, M2 velocity has round-tripped those gains. When the rate at which banks lend and people spend declines, it reflects an impediment to growth.

Enter the nuance being captured by Pave’s models. We made a point in an earlier note regarding demand destruction. Consumer purchasing behavior is in many instances reflexive, leading to the old saw among economists that “the best cure for high prices is high prices.” With this backdrop, we take note of the negative scores generated by Pave’s models for two key consumer sectors: Consumer Cyclicals and Consumer Services. With consumer spending a significant driver of GDP, accounting for roughly two-thirds of the total output (FRED), we are sensitive to this nuance and will monitor these scores closely.

These are early warning signals unrelated to the AI capex debate, but well worth our attention.

By Martin Chanzit, CFA and Anusha Rodriguez

Risk Disclosure & Disclaimer

‍For Financial Professional Use Only

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. There is no guarantee any investment recommendations will be successful and there is a risk of losing money.

We take protecting your data and privacy very seriously. Please see our privacy policy here.

Pave Investment Advisors, LLC is an SEC-registered investment adviser. Such registration does not imply any level of expertise.

Securities offered through Pave Securities, LLC – New York, NY. Member FINRA/SIPC. You can review Pave Securities, LLC with FINRA’s BrokerCheck BrokerCheck.

Advisory Services are only offered through Pave Investment Advisors, LLC, an SEC-registered investment adviser which is an affiliate of Pave Securities, LLC.

Pave Securities, LLC and Pave Investment Advisors, LLC do not offer tax or legal advice.

The news, resources, and articles available on this site are being presented for educational purposes only and should not be considered specific investment or planning advice applicable to each individual.

Please see ADV Part 2A here and Form CRS here.

For Additional Information and Important Disclosures please click here.