5 Stocks to Buy Before the Fed's Next Move

Every large investment firm publishes an outlook. Most are beautifully designed collections of economic forecasts, carefully hedged predictions and charts explaining why the firm’s existing positions are almost certainly correct. They are often useful as doorstops and reasonably effective as sleep aids. Carlyle’s 2026 midyear outlook is different.

Instead of guessing whether the S&P 500 will finish the year at 6,900, 7,200 or whatever number generates the most television appearances, Carlyle asks five questions that matter: What does the affordability crisis mean for Federal Reserve policy? Is artificial intelligence spending crowding out investment elsewhere? What are Japan’s bond and currency markets telling us? Are investors worried about the wrong credit boom?

Can Europe finally put its enormous savings pool to productive use? Those questions identify trends that could last well beyond the next inflation report or Fed meeting. They also lead us to five stocks worth considering: WM, Eaton, Toyota, Ares Capital and Deutsche Bank. , Daniel D’Aniello and David Rubenstein.

The firm began as a small private investment partnership and grew into one of the world’s largest alternative asset managers, with operations across private equity, private credit, infrastructure and investment solutions. Its Washington roots have always distinguished Carlyle from the traditional Wall Street crowd. The firm developed deep relationships across government, defense, industry and global policy circles. That does not make Carlyle infallible.

No investment firm is infallible, regardless of how many former cabinet officials attend its conferences. It does mean Carlyle tends to examine the interaction of capital, politics and economic power rather than simply projecting next quarter’s earnings. That perspective is useful right now. Inflation Is a Political Problem Carlyle’s first major point is that inflation has become more than an economic statistic.

It is now a political problem. Wall Street experiences inflation through spreadsheets and monthly government reports. If the consumer price index comes in one tenth of a percentage point below expectations, everyone celebrates and a strategist declares victory on financial television. Actual voters experience inflation at the grocery store, the insurance office, the pharmacy counter, and the utility bill.

They do not care that the monthly rate of increase has slowed. They know prices remain dramatically higher than they were several years ago. Carlyle estimates that consumer prices have risen about 30% cumulatively since the pandemic. Grocery prices have climbed far above the trend established during the prior decade.

That creates political consequences. The report cites New York City’s commitment of $70 million to establish five publicly owned grocery stores. Whether that proposal succeeds is almost beside the point. Voters are becoming more receptive to price controls, public ownership, and direct government intervention.

The longer inflation remains elevated, the greater the risk that politicians interfere with markets, margins, and capital allocation. The Federal Reserve appears to understand the danger. Carlyle notes that the Fed’s June projections showed policymakers becoming less optimistic about core inflation. Some officials were reportedly willing to consider reversing the previous year’s 75 basis points of rate cuts.

The report makes one of the best observations I have seen this year: the definition of a monetary policy dove has changed. At the beginning of the year, a dove wanted three or four rate cuts. By midyear, a dove was someone willing to leave rates unchanged. The market still wants to believe the Fed is marching toward rates below 3%.

Carlyle does not believe that path is predetermined. That leads us to the first stock. Sticky Inflation Stock My preferred stock for a higher-for-longer inflation environment is Waste Management (NYSE: WM ). Garbage collection is not optional.

Nobody decides to store six months of household waste in the garage because interest rates are too high. WM owns an essential, recurring business with local market density, valuable landfill assets, contractual pricing power and strong cash generation. That is exactly what I want when labor, fuel, insurance and equipment expenses remain elevated. The attraction is not that WM is statistically cheap.

It often is not. Quality businesses rarely remain cheap after everyone recognizes the quality. The attraction is the company’s ability to raise prices and protect margins while weaker businesses are squeezed between rising costs and reluctant customers. This is not the stock that will make you look brilliant at a cocktail party.

It is the type of business that can quietly compound while everyone else debates whether the latest CPI report is bullish. I would prefer to buy WM during a broad market pullback rather than chase it after a strong run. The thesis is simple: if inflation remains sticky and the Fed keeps rates elevated, own an essential business with genuine pricing power. AI Is Consuming Almost Everything Carlyle’s most provocative argument concerns artificial intelligence.

The firm is not saying AI is fake or about to disappear. It is asking a more important question. Where will all the money, equipment, electricity, and skilled labor come from? Forecasts suggest more than $5 trillion could be spent on AI-related infrastructure through 2030.

S. net fixed investment of approximately $950 billion. The implication is extraordinary. S.

economy over the next several years. Technology-related investment increased approximately 30% from the previous year while investment outside technolo