Sep 2, 2026 · 38 min
Investors weigh higher yields against a widening AI cycle
Fears Grow of Extended Conflict in Iran; Oil Halts Advance
The episode connects rising long-term yields and persistent inflation with shifting opportunities across equities, credit, and global investment.
- 1Higher long-term yields reflect competing forces, including inflation, fiscal deficits, foreign rates, growth, and term premiums.
- 2AI investment is broadening beyond core processors, while small- and mid-cap stocks may benefit as earnings growth converges.
- 3Persistent inflation and tight credit spreads are encouraging caution even as AI, defense, and climate spending support global growth.
Don't miss
Jay Pelosky presents a tripolar global spending supercycle in which AI, defense, and climate investment reinforce growth and bond yields.
The brief
Sebastien Page frames rising long-term yields as a contest among inflation, fiscal deficits, foreign rates, growth, and term premiums—not simply a bet on more Federal Reserve hikes.
The AI trade is moving beyond core processors as bottlenecks shift, while regional earnings and small- and mid-cap opportunities depend on where growth broadens next.
Kelly Kowalski favors investment-grade bonds but sees little reason to chase AI-related debt when tight spreads offer limited upside and preserve downside exposure.
Frances Donald points to broad-based inflation, wage pressure, tariffs, and weak consumer confidence, while Canada works to diversify trade amid tensions with the United States.
Jay Pelosky’s central claim is that simultaneous AI, defense, and climate spending across Asia, Europe, and the Americas can sustain growth—and higher developed-market yields.
What was said on this episode
24 statements · 11 positive · 11 negative · 2 neutral
Ten-year Treasury yields are currently highly responsive to oil prices.
“the 10-year is actually quite responsive to oil prices”
Listen at 4:05
Oil prices and inflation are important contributors to rising long-term rates.
“do not underestimate the oil price and inflation component of rising long rates”
Listen at 4:21
Markets sometimes overestimate the Fed’s effect on the economy and S&P earnings.
“sometimes you just overthink the role of the Fed in the macroeconomy and in S&P earnings”
Listen at 5:37
The AI investment trade will continue.
“the AI trade continues”
Listen at 7:09
Investors should be selective when investing in the AI trade.
“you do need to be selective in how you play the AI trade”
Listen at 7:14
Elevated oil prices will affect energy-dependent economies more.
“this will have more of an impact on energy-dependent economies”
Listen at 8:47
Small- and mid-cap stocks are attractive as the market broadens.
“We like the broadening trade. We've been long the small and mid caps for over a year.”
Listen at 9:03
Small- and mid-cap earnings growth will converge with large-cap growth.
“There is a convergence in the earnings growth at some point between small and mid caps and large caps.”
Listen at 9:09
Small- and mid-cap stocks have a valuation advantage over large caps.
“you have a valuation advantage”
Listen at 9:59
Yields between 4.75% and 5% are uncomfortable for equity markets.
“we're in an uncomfortable zone for yields, you know, sort of that four and three quarters to five percent”
Listen at 15:39
Equity markets will face difficult conditions over coming months and into next year.
“it's going to be a grind in the next few months and looking into next year”
Listen at 16:37
Compute demand is in a structural long-term bull market.
“we're in a structural bull market for compute demand”
Listen at 17:41
Half of CPI basket items are currently rising above 3%.
“50% of the items in the CPI basket are running above 3%”
Listen at 20:37
U.S. employers are expected to create 16,000 jobs in the upcoming report.
“Sixteen thousand jobs is what we think is going to be created.”
Listen at 21:42
The U.S. labor market is currently extremely tight.
“This is an incredibly tight labor market”
Listen at 21:55
Job creation will slow while the labor-market break-even rate stays near 20,000.
“job creation is going to slow as the break-even rate remains around 20K”
Listen at 22:50
A very tight labor market will prevent U.S. services inflation from declining.
“you're not going to see a downward move in services inflation in the United States with a labor market that is this tight”
Listen at 23:48
Canada recorded 3.3% second-quarter growth and strong job creation.
“The economy just posted 3.3% growth for the second quarter. Job creation is strong.”
Listen at 24:28
Canada may be withstanding current trade tensions relatively well.
“But Canada might be holding its own”
Listen at 24:44
U.S. Treasury yields above 5% would probably create a buying opportunity.
“If we get above five percent, that's going to be probably a buying opportunity.”
Listen at 30:57
Current U.S. Treasury yields are not attracting substantial foreign demand.
“the yields at this level are still not really driving foreign interest”
Listen at 32:05
The Iran war is linked to higher oil prices, inflation concerns, and rising long-duration yields.
“the Iran war, the price of oil, inflation concerns and long duration back up in yield”
Listen at 32:53
U.S. inflation is not currently very concerning.
“I don't think the inflation picture in the U.S. is that worrisome.”
Listen at 34:32
Markets are probably right to price a greater-than-50% chance of a rate hike.
“the market's probably right in pricing a better than 50 chance that there will be a rate hike”
Listen at 35:40
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.