One of the most consistent themes in markets and economics is that long-term trends rarely move in a straight line. They swing like a pendulum from one extreme toward another. Scarcity leads to investment, investment eventually creates excess, and political priorities shift from one side of the spectrum to the other over time. Over the past few decades, one of the strongest forces pushing that pendulum has been globalization and the pursuit of maximum efficiency.
The global economy affects almost everything around us. Take the iPhone. It may be designed in California, but its semiconductors, batteries and other components are manufactured, assembled and transported through supply chains stretching around the world. For most of human history, coordinating thousands of specialized suppliers across dozens of countries to produce one device would have been unimaginable. Today, we order that device online and consider it an inconvenience if it takes more than two days to arrive.
Two primary rails make this system possible, one physical and the other financial. The United States has benefited from both through cheaper goods, a higher standard of living, and a financial system near the center of global trade and capital flows. Being atop this system does have tradeoffs, however, and since 2020, some of those tradeoffs have become harder to ignore.
The pendulum is beginning to shift from maximum efficiency toward greater resilience, with important implications for the economy, markets and portfolio construction.
The Physical Rails: Supply Chains
It may sound cliché, but the world after COVID really is different, and few areas have changed as dramatically as global supply chains.
The pandemic exposed vulnerabilities across everything from semiconductors to basic consumer goods. Rising geopolitical conflicts have also highlighted countries' dependence on foreign energy and raw materials, while semiconductors, critical minerals and other strategic resources have increasingly become matters of national security.
Source: U.S. Census Bureau via Federal Reserve Bank of St. Louis (FRED), Total Construction Spending: Manufacturing in the United States (TLMFGCONS). Seasonally adjusted annual rate. Data through August 2026.
Companies are reshoring manufacturing, moving supply chains closer to home, and increasingly "friendshoring" production among trusted trading partners. The cheapest supply chain is no longer necessarily the most valuable one if a conflict or disruption can shut it down.
Morgan Stanley has described this shift as moving away from an era where companies and countries looked for the cheapest available option to one where security, continuity and access to critical supplies matter more. "Deglobalization" may be too strong a term, but the global economic system is clearly being rewired.
We can already see evidence of that shift in the data. U.S. manufacturing construction spending rose sharply from 2021 through 2024 and, even after pulling back from its peak, remains well above pre-2022 levels.
The Invisible Financial Rails: The Dollar System
Globalization also depends on a financial system connecting buyers, sellers, banks and governments using different currencies.
Historically, dominant economic powers have often supplied the world's leading international currency, from the Dutch guilder in the 17th century, to the British pound in the 19th century, and eventually the U.S. dollar in the postwar era.
For decades, the dollar has sat at the center of that system. It is used to price global trade, make international loans, issue debt and serve as a reserve held by central banks, meaning the foreign currencies and other assets they hold to help manage their economy. The United States represents roughly 25% of global GDP, yet the dollar accounts for roughly 65% of a Federal Reserve measure of international currency use.
That status has provided enormous benefits. Global demand for dollars and Treasury securities expands the pool of investors willing to finance U.S. households, businesses and the federal government, helping keep borrowing costs lower and allowing American companies to conduct much of their international business in their own currency. The U.S.’s outsized role is also visible in equity markets. U.S. stocks now represent more than 70% of the MSCI World Index, a developed-market equity index, far above the U.S. share of developed-market GDP or corporate revenues.
Source: MSCI, “Economic Weighting: An Alternative Approach to Country Allocation,” July 2026. Market-cap share as of April 30, 2026. GDP share based on IMF World Economic Outlook, April 2026, using 2025 nominal GDP. Revenue share based on aggregate reported revenues of MSCI World Index constituents.
Just as global supply chains for physical goods are being rewired, some of the same forces are also influencing the financial system. Geopolitical tensions and sanctions have made countries more conscious of their dependence on dollar-based markets. Large U.S. fiscal deficits have raised questions about the long-term fiscal outlook, while higher interest rates and growing capital markets abroad give investors more alternatives to U.S. assets.
Central banks around the world have also gradually diversified their reserves. The dollar remains dominant, but its share of global foreign-exchange reserves has declined from more than 70% around 2000 to roughly 57% in the latest available data, while demand for gold and other reserve assets has increased.
Governments and investors are increasingly asking the financial version of the same question facing supply chains: how much do we want to depend on any one currency, market or country?
Building Resilience Into Portfolios
The shifts in both areas have major implications for investors. As the global economy reorganizes, portfolios need to become more resilient too.
On the physical side, resilience requires investment. Factories need machinery. Data centers need semiconductors and electricity. Energy security requires generation and transmission infrastructure, while defense spending requires manufacturing capacity and raw materials.
That helps explain renewed investor interest in what Goldman Sachs calls HALO, short for Heavy Assets, Low Obsolescence. For much of the 2010s, investors rewarded businesses that could grow without spending heavily on physical assets, with software being a perfect example. Today, more money needs to go into things that actually have to be built: factories, power systems, data centers and the infrastructure connecting them.
That creates opportunities beyond the large U.S. technology companies that dominated the last decade. Reshoring and infrastructure spending can benefit industrial and utility companies, smaller and mid-sized businesses, energy infrastructure, natural-resource producers and commodity-rich regions such as parts of South America.
Source: Vanguard and Morningstar, Inc., as of December 31, 2025.
These opportunities also come with tradeoffs. Moving production closer to home may mean higher labor costs. Maintaining multiple suppliers costs more than relying on one, and competition for critical raw materials can push input prices higher. Some of the forces that helped make goods so cheap over the last few decades may not be as powerful going forward, which could mean more upward pressure on inflation and interest rates.
The financial shift could also change where global capital flows. If more capital stays overseas rather than flowing to the U.S., international and emerging markets could stand to benefit. Central bank reserve diversification and concerns about the purchasing power of currencies could also support demand for gold and other hard assets. Less foreign demand for U.S. Treasuries could put upward pressure on U.S. interest rates, creating opportunities to add income to portfolios after years of unusually low interest rates.
Despite signs that the global economy is rewiring itself, many U.S. portfolios are still positioned for the world that dominated the last decade, with heavy concentrations in U.S. equities and relatively little exposure to international markets. We continue to favor a broader mix of return drivers, including a healthy mix of international equities, gold, natural resources and other hard assets, while remaining opportunistic in fixed income as yields become more attractive. If the range of possible economic outcomes is widening, portfolios should be built to handle more than one path.
Some of these ideas may seem abstract, but the more you study these cycles, the more apparent it becomes that underneath all the data, markets and the global economy are powered by something very familiar: human nature. Human nature has a habit of pushing the pendulum toward extremes before eventually pulling it back. We may not know exactly when it will swing, but we can build portfolios that are prepared for a changing world.