Oct 12, 2026 · 17 min
Markets face a test from earnings, inflation and higher yields
Top of the Morning: CIO Strategy Snapshot - Q3 earnings, oil prices, inflation data
The episode frames the tension between supportive U.S. fundamentals and the risks that elevated interest rates and energy prices pose to investors.
- 1Stronger growth expectations and a higher projected Federal Reserve path have driven much of this year’s rise in Treasury yields.
- 2Third-quarter earnings from major banks will test whether corporate results can match the strength seen in the second quarter.
- 3CIO expects broadly supportive U.S. fundamentals, but persistently high rates and energy costs remain key risks for risk assets.
Don't miss
Jason Draho connects this year’s higher Treasury yields to stronger growth expectations and a higher projected path for Federal Reserve policy.
The brief
After a relatively calm week, modestly lower Treasury yields and equity gains give way to a packed agenda: third-quarter earnings, inflation data and retail sales.
Jason Draho argues that stronger growth expectations and a higher projected path for Federal Reserve policy explain much of the rise in Treasury yields this year.
The unofficial start of earnings season, led by major banks, will show whether projected third-quarter growth can hold up against the strong results delivered in the second quarter.
Draho’s CIO view remains constructive on U.S. fundamentals and risk assets over the next year, while moderating growth, inflation, rates and oil prices shape the outlook.
The central tension is clear: markets may have fundamental support, but persistently high interest rates and energy costs could keep investor positioning under pressure.
What was said on this episode
12 statements · 5 positive · 7 negative
A major Treasury-yield decline requires substantial deterioration in economic growth.
“to get a real significant decline in the 10-year yield, and let's say... to pick a number, retracing more than half of the increase this year. So if it's up 108 basis points to decline more than 54 basis points, I think you need some clear material degradation of the growth outlook for the economy overall.”
Listen at 6:20
AI may have contributed up to 100 basis points of first-half real GDP growth.
“Our estimates would say that the first half of this year, that AI could have accounted for upwards of 100 basis points of the 2.4% of real GDP growth.”
Listen at 6:47
Treasury yields will decline over the next six months if two conditions materialize.
“We still think that yields will decline over the next six months, provided two factors sort of materialize.”
Listen at 7:16
Oil prices will decline if the United States and Iran credibly de-escalate.
“oil prices will actually sort of decline in a credible de-escalation between the U.S. and Iran.”
Listen at 7:29
Three additional Federal Reserve rate hikes are not the base case.
“three more hikes in total seems quite extreme or, you know, not our base case.”
Listen at 7:58
Treasury yields will ultimately decline.
“ultimately we think yields are going to go lower.”
Listen at 9:29
Semiconductors and energy may generate over half of third-quarter earnings growth.
“It is still going to be dominated by semis and energy, and they could account for more than 50% of the earnings growth in the third quarter.”
Listen at 11:24
U.S. macro fundamentals will remain supportive for risk assets over twelve months.
“Ultimately, we expect U.S. macro fundamentals to remain sort of benign and supportive for risk assets over the next 12 months.”
Listen at 13:44
Oil prices will decline.
“Oil prices, ultimately, we do think will come down.”
Listen at 14:02
Ten-year Treasury yields could rapidly fall back to 5%.
“Yields could decline. And then to sort of cover some of that kind of short position, you could see yields decline very rapidly. So like the tenure could fall back to 5% in just a matter of a few days.”
Listen at 14:52
Bonds, fixed income, and equities are attractive investments.
“both bonds and fixed income and also equities are attractive in our view”
Listen at 15:26
Investors should position for upside while diversifying.
“position for upside, but also diversify in this macro environment.”
Listen at 15:48
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.