Oct 15, 2026 · 52 min

AI spending reshapes the outlook for stocks and interest rates

What’s Ahead for Stocks this Quarter—and Where to Invest

The episode connects elevated equity valuations and concentrated AI investment with changing growth, inflation, bond yields, and risks in private credit.

3 key takeaways

1U.S. market valuations vary sharply by sector, moat category, and company, leaving pockets of potential opportunity.
2AI-driven investment may support economic growth while also influencing inflation, bond yields, and the level of interest rates.
3Morningstar sees undervaluation concentrated in a limited group of stocks as mega-cap risks and private-credit strains grow.

Don't miss

Preston Caldwell’s explanation of how AI investment can affect growth, inflation, bond yields, and interest rates provides the episode’s central macroeconomic tension.

The brief

Dave Sekera opens Morningstar’s fourth-quarter 2026 outlook by assessing U.S. equity valuations across sectors, economic moat categories, and selected stocks.

Preston Caldwell argues that AI-driven investment is reshaping the macroeconomic outlook, linking stronger growth and investment with inflation, bond yields, and interest rates.

The discussion turns to concentration: mega-cap companies carry risks even as Morningstar finds undervaluation in a narrower set of stocks.

Sekera highlights Morningstar’s “undervalued seven” before taking audience questions on markets, individual stocks, and portfolio implications.

The episode closes with a broader warning: rising bond yields and worsening private-credit conditions complicate an otherwise constructive investment outlook.

What was said on this episode

15 statements · 5 positive · 8 negative · 1 mixed · 1 neutral

Dave Sequeiraon Equity (finance)Neutral3:44
Investors should maintain a market-weight allocation to equities.
“I still think as an investor, you should be a market weight equities”
Listen at 3:44
Dave Sequeiraon Federal Reserve rate hikeNegative4:15
The Federal Reserve will likely raise rates once more by year-end.
“I think we're looking for another rate hike by the end of the year”
Listen at 4:15
Dave Sequeiraon U.S. economy and AI buildoutMixed4:49
U.S. economic performance depends substantially on continued AI investment.
“The U.S. economy is reliant on the AI buildout”
Listen at 4:49
Dave Sequeiraon AI-related stocksNegative4:57
Failure of the AI buildout would pose substantial risk to AI-related stocks.
“if that were not to come to fruition, that would be a big risk for a lot of those AI stocks”
Listen at 4:57
Preston Caldwellon Artificial IntelligenceNegative23:10
AI is currently the largest factor keeping interest rates above pre-pandemic levels.
“AI, in my view, is the biggest factor why interest rates are so considerably elevated above pre-pandemic levels.”
Listen at 23:10
Preston Caldwellon 10-year Treasury yieldPositive26:14
Federal Reserve easing will drive the 10-year Treasury yield to 3.5% by 2029.
“I expect the Fed to loosen monetary policy, sufficient to drive the 10-year Treasury yield down to 3.5% in 2029”
Listen at 26:14
Preston Caldwellon AI and productivity growthPositive30:26
AI will sustain the recent strong rate of productivity growth.
“I do expect AI to sustain the strong growth rate and productivity that we've seen”
Listen at 30:26
Preston Caldwellon U.S. labor marketPositive31:49
The labor market is not currently pushing inflation above the Federal Reserve’s target.
“the labor market is providing no impulse to inflation above the Fed's target at all right now”
Listen at 31:49
Preston Caldwellon AI productivity impactNegative32:56
AI has not yet produced a large productivity boost.
“I don't think AI is a big boost to productivity”
Listen at 32:56
Preston Caldwellon AI boom and U.S. bond yieldsNegative37:16
The AI boom is the major factor driving U.S. bond yields higher.
“the AI boom”
Listen at 37:16
Preston Caldwellon U.S. government debt crisis riskNegative37:32
U.S. bond-yield increases are not primarily explained by government-debt crisis risk.
“for the U.S., this story doesn't make a lot of sense”
Listen at 37:32
Preston Caldwellon AI boost and interest ratesPositive41:15
A fading AI boost would cause a major correction in interest rates.
“if this AI boost fades, then I think we will see a major correction in interest rates”
Listen at 41:15
Preston Caldwellon AI investment and white-collar employmentNegative42:07
AI investment would require several million white-collar layoffs to generate sufficient labor savings.
“We'd have to see several millions in layoffs of white collar workers, predominantly, in order to create a labor cost savings that would pay for the AI spending”
Listen at 42:07
Dave Sequeiraon AI technology leadersPositive45:11
Investors should favor technological leaders in artificial intelligence.
“I really want to stick with the technological leaders in artificial intelligence”
Listen at 45:11
Dave Sequeiraon private creditNegative50:24
The private-credit category is expected to deteriorate further.
“It is a category that we still continue to see getting worse going forward.”
Listen at 50:24

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.