Perspectives

First cracks in the AI boom?   The cracks in the AI boom continue to accumulate, although they are not yet sufficient to undermine overall risk-taking. So far, equity market losses are modest, except in many parts of technology. The silver lining is that oversold government bonds have rallied. Yields seem on track to overshoot but have calmed in the past two weeks. The economic/inflation/policy fundamentals remain bond-bearish, although valuations had improved and conditions were oversold an… View More

The oversold bond market is finally beginning to stabilize Oversold bond markets are finally starting to stabilize, mostly because of cracks in AI plays. Bond yields could consolidate for a period of time. However, any bond market reprieve should prove temporary, partly because a cap on yields reduces downside economic risks. Global growth has been firming, and inflation remains elevated and sticky.   Market & Economic Highlights 1 . Core CPI climbed 0.33% in September after a 0.29% inc… View More

The upward pressure on global bond yields has intensified   Stocks rose last week (S&P 500 +1.17%). Equal weight was up for the first time in eight weeks, even though the Russell 2000 was down for the fifth straight week. Some signs of rate stabilization and improving breadth were encouraging. The best sectors were consumer staples (+3.99%), utilities (+3.97%), and energy (+3.62%); two sectors were negative for the week: industrials (-0.40%) and technology (-0.26%). The upward pressure o… View More

Rate Hike Likely Deferred to December   Only one month ago, the big story about the US economy was how strong it was. The August jobs report, released in early September, showed that payrolls rose 162,000 for the month. Meanwhile, at one point, the Atlanta Fed’s “GDP Now” model was estimating real GDP would grow more than 5% at an annual rate in the third quarter. This impression of the economy shifted on Friday when the Labor Department reported that payrolls were up only 29,000 in Se… View More

The bond market became unruly last week   The bond market became unruly last week, with the 10-year Treasury yield ending higher at 5.16%. Since inflation expectations measures have stayed relatively stable, by process of elimination, recent moves have reflected real growth expectations and the term premium. Geopolitics & commodity prices have remained key sources of uncertainty. While there was hope around the UN meeting early last week, it seems clear the global political situation rem… View More

Will Something Break? Bond Yields, Inflation, & Market Risk Bond markets have weakened steadily in recent months despite widespread rate hikes and hawkish central-bank rhetoric. Firming global growth, accommodative monetary conditions, expanding budget deficits, a surge in AI-related corporate borrowing, and sticky inflation have all pushed yields higher and dashed hopes for lower rates. Meanwhile, political efforts to cap U.S. Treasury yields have backfired.   Summary Stocks were mixed… View More

Bond Yield Increases Are Finally Impacting Equities Stocks pulled back last week as oil approached $100 per barrel, inflation remained elevated, and bond yields continued to rise. Investors are grappling with an escalation of war on two fronts: the military war between the U.S. and Iran, and the trade war between the U.S. and Canada. The still supportive global economic outlook implies the uptrend in earnings will persist, but the risks of a slowdown as 2027 develops are material. Get Bob's tak… View More

3Q Estimate Being Revised Higher Marginally Up until this point, the earnings discussion has largely focused on technology and AI capex, but one thing we noticed this past earnings season is that a “beat and raise” is not always enough to push a stock higher. Expectations are already quite high, and the bar continues to rise. Looking ahead to the third quarter, we are seeing estimates continue to be revised upward. Since the beginning of the third quarter, the consensus estimate has increas… View More

Federal Reserve Chairman Kevin Warsh used his Jackson Hole speech last week to lay out his views on monetary policy. Two things jumped off the pages of his speech. First, "Fedspeak" may be making a comeback. Former Fed Chairman Alan Greenspan became famous for phrases like "irrational exuberance." One section of Warsh's speech, titled "Preparing for Future Policy Conjunctures," felt like a throwback. "Conjunctures," really? Greenspan would be proud. Second, the narrative about Warsh is that he… View More

Will Higher Interest Rates Threaten Equities?   Long-term Treasury yields continue to face upward pressure as economic growth remains solid, inflation stays sticky, and government finances deteriorate. While the Treasury’s efforts to support longer-dated bonds may provide some relief, they are unlikely to reverse the forces driving yields higher. Meanwhile, financial markets continue to benefit from rising corporate profits and supportive monetary and fiscal policies. Could higher rates and… View More