Over the peak

October brought another bout of artificial intelligence (AI)-related volatility and a reminder that the air has become a bit thinner at these heights. The divide between companies with strong profits and cash to spare and those reliant on external funding is becoming more apparent. Corporate earnings remain well supported in our view. The 10-year US Treasury yield has risen by about 100 basis points this year to its highest level since 2007. In Europe, French government bond spreads over German Bunds have come close to euro-crisis highs.

Key take aways

Equities navigate AI doubts and rate risks
Investors have become more critical. The divide between companies with strong profits and cash to spare and those reliant on external funding is becoming more apparent. Investors became more selective, favoring companies able to fund investments through internal cash flows.

Is there still safety in bonds?
Central bank interest rates and bond yields have returned as a key market topic. For the US and Europe, the increase in yields is not driven by long-term inflation expectations. Looking ahead, we believe inflation and 10-year US Treasury yields may have peaked or could be close to their peak.

Flatter terrain in 2027
Growth will likely remain strong but momentum may ease somewhat. With fiscal support around the world poised to fade, especially in the US, we believe demand could lose some steam. Corporate earnings remain well supported in our view.