Episode summary
Three Warning Signs That Would End This AI Profit Boom
Summary
The host argues that the Federal Reserve is no longer the main force driving stocks, because the bond market has regained control of interest rates. He says amateur investors focus on the Fed funds rate, while professionals watch the 10-year Treasury yield because it feeds into stock valuation models. In his view, higher rates are not automatically bearish if they reflect a healthier market setting rather than artificial suppression.
He also argues that higher yields are beneficial for retirees and for the economy because they reduce the pressure to chase risky assets just to earn income. He contrasts today’s 4% to 5% rates with the period when T-bills yielded less than 1%, saying that ultra-low rates encouraged speculation, bubbles, and unhealthy behavior across assets like housing, crypto, and stocks.
On the market outlook, he says the old rule that a 5% 10-year yield would crush stocks has weakened because corporate earnings, especially from the AI boom, are now strong enough to absorb it. The biggest warning signs for the end of the profit boom, he says, would be a slowdown in Magnificent 7 spending, AI financing deals falling apart, or a major geopolitical shock.
Key takeaways
- The host says the bond market, not the Fed, is now setting the key interest-rate signal investors should watch.
- He says higher yields are healthier for retirees because they can earn income without taking as much stock-market risk.
- He says the old 5% ceiling on the 10-year yield has stopped mattering as much because earnings are strong enough to support stocks.
- The host says the AI-led profit boom could falter if the Magnificent 7 stop spending heavily or if AI financing deals break down.
- He says a major geopolitical shock, including an escalation involving Iran, is another risk that could end the rally.
Notable quotes
“It doesn't really matter what the Fed does. They could raise a quarter, stay flat, or even lower a quarter. Doesn't really matter”
“The bond market is back in charge, 100%”
“amateurs look at the Fed funds rate, professionals look at the 10-year bond yield”
“the 10-year yield, which is really really pushing that 5%”
How the episode opens
Good morning. This is Dolan Jovane with Behind the Markets. Happy Thursday.
Today is Thursday, September 17th. You know, the Fed made hit the big decision yesterday. Now, I was talking to my buddy Ryan who works here.
Many of you guys have talked to, talked very highly about. I was talking to him yesterday about the Fed move. And you know, I said to him, "It doesn't really matter what the Fed does.
They could raise a quarter, stay flat, or even lower a quarter. Doesn't really matter. The bond market is back in charge, 100%.
And I think that's the point. I think really what Wurst is trying to do is to get the Fed out of the business of manipulating interest rates and manipulating the market really, suppressing interest rates so poorly. And letting the bond market, the market itself tell us what interest rates should be.
And we're seeing this happen with the 10-year bond, the 10-year yield, which is really really pushing that 5%. I've told you many many times on this channel that amateurs look at the Fed funds rate, professionals look at the 10-year bond yield, cuz that's what we use to really determine what the value is of stocks that we pay. We use the 10-year yield as part of our dividend discounted cash flow analysis.
So, you know, and I agree with Wurst 100% here. The Fed should have a lower footprint in here, and there's a couple reasons for that. Number one, remember something.
When interest rates and stocks have an inverse relationship, okay? Interest rates go higher, stocks tend to go lower. Interest rates go lower, stocks go higher, right?
Interest rates are the ultimate gravity for all assets, whether it's a house, whether it's a car, whether it's crypto if you consider that an asset.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai profit boom
- 10 year treasury yield
- fed policy
- market valuation
- earnings vs speculation
Watch the episode
Watch “Three Warning Signs That Would End This AI Profit Boom” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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