Empty Nest—3rd Quarter 2026 Commentary

Empty Nest
A Story of Growth, Friction, and a Black Lab

Seven years ago, my father, Frank Bragg (aka Papa), conspired with my son Charlie, then 12 years old, to convince my wife that Charlie needed a puppy for his birthday. I wrote about this in Black Lab Puppy back in 2019. Here are selected excerpts from that story:

2019: Charlie gave us his birthday list back in July. At the top of the list: a puppy. Alice quickly informed Charlie that we were not getting another dog, especially a puppy. “We already have a wonderful dog [it’s true] and there is no way we are doing that puppy thing again. Now go think of something else to put on your birthday list.”

That seemed to shut Charlie down for about a week, but then one day he came home with two well-worn dog-training books, Family Dog and Water Dog, both classics written by Richard Wolters back in the sixties and still in print today. He held up his books and proceeded to make a remarkable argument for getting a puppy. “Everything I need to know is right here in this book, Mama. I will train this dog and I will take care of him. He and I will be best friends. And I need a friend. My brothers and sister will all be in college soon and I will need some company.”

Alice was moved. “Wow, Charlie, that is quite an argument for a boy your age. How did you come up with all of that? And where did you get those books?” It was then that we learned that Charlie had been huddling with his grandfather, hatching this plan to get a puppy. He said, “Papa gave them to me. Papa says every boy needs a dog. He said he had a dog when he was a boy and he said that Daddy had two beagles when he was a boy. And Papa said he would help me train him and that you wouldn’t have to do anything.”

Alice caved. Charlie got a black lab puppy and named him Mac. As Alice predicted, he has taken over our lives (especially hers). She’s been a wee bit testy of late. Charlie has never been happier.

Return to present day: You’ve read about Charlie and Mac over the years in Paw Paws and Persimmons and Duck Blind. Boy and dog formed an amazing relationship and were inseparable as they shared many an adventure growing up together on our farm. And Charlie held up his end of the deal: training, feeding and caring for Mac, just as promised.

Like me, dear reader, you are getting older. Believe it or not, young Charlie left for college in August. Departure day was a sad day on the farm. Alice and I held back tears watching Charlie say goodbye to Mac. Our nest is now empty. Except for Mac. And Mac has been the source of some unanticipated friction in our marriage since Charlie’s departure. It seems Charlie really was Mac’s anchor, his soulmate, his everything. Lost without him, Mac sits on the front porch in the afternoon, waiting for Charlie to get home from school; he sneaks upstairs and lies on the floor outside Charlie’s bedroom, and he insists on spending his late mornings lying on a dog bed in the garage amid all of Charlie’s stuff—his boots and his bows and arrows, his duck decoys and deer stands, his fishing boat and tackle boxes, his tools, and his old golf cart (camouflaged). Tugs at your heart a bit, yes?

Charlie Bragg and Mac, then and now

But it’s the bad behavior that has caused the friction. Alice and I can’t seem to agree on who should be responsible for feeding, walking, disciplining and cleaning up after the dog. In Alice’s view, a seven-year-old dog shouldn’t require a lot of discipline or cleaning up after. But Mac has always had a mind of his own. He delights in manipulating us, doing the opposite of what we’ve asked him to do. He chews up stuff just to get under our skin, and won’t be bothered to comply with our commands unless rewarded with treats. And worst of all, he regularly runs off and gorges himself on ripe paw paws, persimmons, figs, and muscadines, which grow in abundance on our farm. Strictly organic for Mac! Sophisticated palate aside, Mac’s insatiable appetite for this fare is a problem and often results in an unwelcome morning clean-up job in the mudroom. Alice blames me. “This dog! You were in charge of him last night. Why did you let him run off to the persimmon tree? This always happens on your watch, Benton!” Friction. But times change. Our boy Charlie has grown up and started a new chapter. Growth is good and we can handle a little friction.

On the subject of growth and friction, the American economy today is serving up a generous helping of both. On the surface, it is booming. Underneath, there is more turmoil than at any time in a generation. Those two forces explain a great deal about why markets have been so unpredictable this year and how we are thinking about the portfolio.

The Growth

Start with the good news, because there is plenty of it. On September 30, the Bureau of Economic Analysis revised second-quarter GDP growth up to a 2.2% annual rate from 1.5%, a bigger upgrade than economists expected, and raised its estimate for the first quarter to 2.5%. Consumer spending grew at a 3.8% annual rate in the second quarter. Unemployment stands at 4.2%, low by historical standards.

What is powering the economy? An extraordinary capital spending boom. In a paper presented at the Brookings Institution’s fall economics conference in late September, Columbia economist Stijn Van Nieuwerburgh estimates that U.S. spending on data centers and AI infrastructure will total $10.3 trillion from 2025 through 2032, an average of 3.6% of GDP every year. If that projection holds, it would be the largest infrastructure buildout, relative to the size of the economy, in American history. The railroad boom of 1870 to 1890 averaged about 2.2% of GDP, though it ran above 4% in its busiest years. The interstate highway system and the 1990’s telecom buildout each averaged about 1.1%. Amazon, Microsoft, Alphabet, and Meta alone now plan to spend more than $700 billion on capital projects this year.

That money doesn’t stay in Silicon Valley. It flows into factories, job sites, and small towns across the country. Trane Technologies, which makes the giant chillers that keep data centers from overheating, reported a record $12.1 billion backlog at the end of June, up 70% from a year earlier, with orders for its large commercial cooling systems in the Americas up 130%. GE Vernova, the gas turbine maker, carries a $176 billion backlog and is now signing agreements for turbines to be delivered in 2031. At Eaton, orders for its Americas electrical business, a major supplier to data centers, were up 41% over the past twelve months. Caterpillar posted its first-ever $20 billion quarter, and dealer sales of its power generation equipment, much of it bound for data centers, jumped 72% in the second quarter. Engineering firm Jacobs reports a record $28.9 billion backlog, and its pipeline of data center work has tripled. Much of the new power being ordered runs on natural gas and demand from these users has skyrocketed. And consultants are in demand as nearly every company in America tries to put AI to work. Accenture signed a record 141 contracts worth $100 million or more last quarter, though it also reported lower pricing across much of its business.

And what about the jobs AI was supposed to destroy? Software developers were to be the first casualties. Instead, Indeed’s Hiring Lab reports that over the year ending in May, the occupations most exposed to AI generally saw the strongest rebound in job postings. Researchers at Stanford found that since 2022, unemployment among the most AI-exposed workers has risen no faster than among the least exposed. And the Bureau of Labor Statistics projects software developer jobs will grow 10% from 2025 to 2035, much faster than the average occupation. To be fair, overall hiring has slowed sharply (employers added just 29,000 jobs in September), the financial industry has been shedding jobs, and young, entry-level workers are feeling some pressure. But the collapse the doomsayers predicted simply has not arrived.

Beneath all of this, nearly everything is churning. Some of this is about location. Semiconductors provide a great example. The world’s largest producer, Taiwan’s TSMC announced a $165 billion investment to manufacture chips in Arizona, while Samsung is building a $17 billion manufacturing facility in Texas. As for pharmaceuticals, 13 drug makers, including Eli Lilly, Johnson & Johnson, AstraZeneca, and Pfizer, have pledged more than $480 billion for about 22 U.S. sites and roughly 44,000 jobs. North Carolina is one of the hubs.

In the communications sector, news, music, and entertainment are being remade by streaming, influencers, and algorithms. There are big moves in finance as well. In July, the Depository Trust & Clearing Corporation (DTCC), which settles nearly every U.S. stock trade, completed its first live trades of tokenized stocks, ETFs, and Treasuries on blockchain networks, and the New York Stock Exchange is developing its own blockchain-based trading and settlement platform. Some innovations are less wholesome. According to Pew Research, combined monthly trading on the prediction markets Kalshi and Polymarket grew from about $2 billion in mid-2025 to $53 billion this July, much of it sports betting dressed up as trading.

That is the picture: on the surface, a massive economy chugging along, with frenetic change underneath.

The Friction

For three decades after the Cold War ended, the world ran on a consensus assumption. Political scientist Francis Fukuyama famously called it “the end of history”: liberal democracy and market economics had won, and trade would harmoniously tie nations together. Economists noticed that inflation and the swings of the business cycle had grown unusually mild; former Fed chairman Ben Bernanke popularized a name for the era: the Great Moderation. Supply chains stretched around the globe in pursuit of the lowest possible cost, and the rise of China was treated as an opportunity rather than a threat.

That era is over. Led by the United States and its America First agenda, the world has turned toward security over efficiency: dependable supply lines, domestic production of critical medicines, and a defense industry that doesn’t rely on rivals for parts. A 100% tariff on imported patented drugs took effect for the largest drugmakers on July 31 and for the rest on September 29. Companies that commit to building plants here pay far less or nothing. The White House says the policy has spurred roughly $400 billion in new investment commitments. Tariffs and contested shipping lanes are now facts of commercial life.

Then came the war with Iran. Since the fighting began on February 28, traffic through the Strait of Hormuz, which carried about a fifth of the world’s oil, has been severely disrupted, and hopes for a reopening have come and gone more than once. The International Energy Agency calls it the largest supply disruption in the history of the global oil market. Brent crude traded above $100 a barrel in late September, and the national average price of diesel—the fuel of every truck, tractor, and generator—set an all-time record of about $6.53 a gallon the week of September 21, according to the Energy Information Administration.
The policy shifts may be defensible on their own, and some are long overdue. Together, though, they create friction. Redundancy costs more than efficiency. A factory in Ohio costs more than one in Shenzhen. Friction shows up as inflation. The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, rose at a 5% annual rate in the second quarter, driven largely by energy; excluding food and energy, it rose 3.3%, still well above the Fed’s 2% target. It shows up as shortages, backorders, and longer lead times. In short, it costs more to do business.

Growth Meets Friction

A booming economy experiencing significant friction doesn’t create conditions for calm. We expect volatile headlines, surprising outcomes, and sharp swings in stock prices for some time.

You can already see it beneath the surface of what looks like a perfectly good year for the market. The S&P 500 was up nearly 13% through September. Yet in late September, nearly four in ten stocks in the index sat 20% or more below their 52-week highs. In September alone, more than three out of four stocks in the index declined, and technology was the only one of the eleven sectors to rise. In the third quarter, a handful of giant technology companies did most of the lifting while much of the market quietly struggled.

Software is the most dramatic example. This year, investors decided that AI would make traditional software obsolete, and the iShares Expanded Tech-Software ETF fell about 37% from its peak in September 2025 to its low on April 10. Then sentiment flipped, and the fund rose roughly 17% in the third quarter alone, even as semiconductor stocks, the darlings of the first half, fell about 11%. Even after that rebound, the software fund ended September below where it stood a year earlier.

The broad market indices tell you very little about what is happening under the surface. Never has a diversified portfolio made more sense.

Rates on the Rise

Interest rates are climbing again. On September 16, the Federal Reserve raised its benchmark rate by a quarter point, to a range of 3.75% to 4%, and the 10-year Treasury yield closed the quarter at 5.29%, its highest close since 2002. We think three forces are at work. First, governments around the world, already deeply in debt, are borrowing even more and investors are demanding a higher rate of interest to keep lending to them. Second, the infrastructure boom requires enormous borrowing. The big technology companies are pouring nearly all of their operating cash flow into building projects and turning to the credit markets for more capital. There is real competition for money and this demand drives up the price of borrowing. Third, friction feeds inflation, and lenders who want to protect the purchasing power of their money insist on a higher interest rate.

Interest rates and bond prices have an inverse relationship. As a result of rising interest rates (a higher price to borrow money), bond values fell during the quarter. The Barclays Aggregate Bond Index fell -3.50%, and long-term Treasury bonds lost more than 7%. There is a silver lining. Today, our bonds, the safer side of the portfolio, are finally paying a genuinely attractive income.

Humility

How do we invest through boom and friction at the same time? With humility. It is our greatest strength as investors and a core tenet of the portfolio management process at Bragg Financial. We can’t see the future. We don’t know when the Strait of Hormuz will reopen, which of the AI spenders will earn a return on their trillions, or where interest rates will settle.

History does offer guidance. Over the last two hundred years, America’s great investment booms, from canals and railroads to electricity, automobiles, and the internet, transformed society and created tremendous wealth. They were not always kind to the earliest risk-takers. The collapse of Jay Cooke & Company, the financier behind the Northern Pacific Railway, set off the Panic of 1873, and 89 of the nation’s 364 railroads went bankrupt in the depression that followed. Many investors lost their shirts, but the country kept the railroad tracks, and generations of Americans prospered because of them.

So we will never bet the farm on any one sector, however compelling the story. We will diversify across asset classes, industries, and companies. We will keep our emotions in check as headlines swing from euphoria to dread. And we are rebalancing portfolios now, trimming what has run and adding to what has lagged, to keep each client’s mix of stocks and bonds where it belongs.

We are genuinely excited about this moment in history. Friction slows things down, but it does not stop a determined, inventive economy. We remain convinced that owning productive assets is the surest path to growing wealth over the long term.

Thanks for sticking with me for a long one! I hope it was helpful. Now, I better go find Mac.

Thank you for your continued trust in Bragg Financial.

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.