AI earnings shield US stocks, but bond risks rise: Jefferies’ Wood
The yield on the US ten-year and 30-year government bonds hit 5.34% and 5.69% respectively to their highest levels since April 2002 and May 2002, partly contributing to last week’s slide in Indian equities, which posted their eighth straight week of losses till Friday.
While US stocks have historically tended to perform poorly in the run-up to mid-term elections before rallying thereafter, that pattern has not played out this year, according to Wood.
“The stock market has historically done relatively badly going into the mid-terms whereas that has not been the case so far this year, primarily because of the stellar earnings growth driven by the highly earnings-accretive AI capex cycle,” he said.
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According to Wood, investors are facing three issues: the first, and perhaps most important for equities, is the duration of the AI capex cycle and whether there will be adequate returns from the massive spending.
He said the second concern is the renewed realisation that G7 government bonds are in a structural bear market, while the third is the state of play in shifting geopolitics.
