‘G force’ driving world markets may need Fed and bond brake
TLT•An AI infrastructure investment boom is helping sustain strong growth and earnings, while US Treasury yields from three to 30 years have risen above 5%. The article says markets may keep giving growth the benefit of the doubt, with the Fed and bond market potentially needing to do more to restrain inflation.
1. Growth and earnings
The article describes strong economic growth and earnings, supported in part by AI infrastructure spending that it says shows no sign of slowing. Nominal US GDP growth was likely above 8% in the second quarter and is on track to top 9% in the third, while an Atlanta Fed model estimates real third-quarter growth at 5.1%.
2. Rate and profit outlook
The article says Treasury yields from three to 30 years are now above 5%, and markets expect as many as four more Fed rate hikes over the coming year after a recent increase. S&P 500 companies’ earnings grew more than 50% year over year in the second quarter, and growth is expected to exceed 30% in the third quarter.
3. Markets weigh growth
Despite higher yields, the article says financial conditions remain accommodative relative to average levels. It notes that S&P 500 and global equity valuations have fallen relative to forward earnings estimates, while investors continue to assess how long strong growth—particularly from AI investment—can persist.
