Episode summary
The Outlook for AI-Related Stocks and US Interest Rates
The Markets
· · 11 min · Hosts: Chris Hussey · Guests: Muhammad Qubbaj
Summary
Muhammad Qubbaj said the latest payroll and CPI data showed an economy that is still resilient, and he argued the market has largely re-priced the Federal Reserve path to fit that data. He said the recent equity sell-off reflected not just rates, but also Middle East geopolitical risk and a crowded, stretched positioning backdrop.
He remains constructive on the AI trade and broader equities, saying the rally has been built on a generational opportunity and that forward valuations are not especially expensive versus the dotcom era. Even so, he expects continued volatility, describing the moves as healthy gyrations and resets rather than the end of the trend.
On rates, Qubbaj said the market looks range-bound and fairly priced for now, with sticky inflation and a resilient labor market balanced against uncertainty over second-half growth. He also said AI financing should remain manageable because the cycle is still early, leverage is low, and strong bond inflows are supporting funding conditions, though he expects borrowing costs could rise more meaningfully in 2027 as issuance and the credit cycle deepen.
Key takeaways
- Qubbaj thinks the post-data rates market is fairly priced, with no near-term asymmetry and a range-bound setup.
- He believes the AI rally can continue, even after 30 percent-plus equity returns, because the trend is still early and valuations are not stretched like dotcom-era extremes.
- He sees AI funding as manageable for now because leverage is low, bond-fund inflows are strong, and equity funding is reducing balance-sheet leverage.
- He expects 2027 to be more challenging for AI borrowers as Treasury issuance rises and the credit cycle matures.
- Near-term risks he is watching are the Middle East conflict, supply digestion in markets, and the new FOMC leadership under Warsh.
Notable quotes
“I think the AI journey that brought about 30 percent plus returns in equities so far is, one, it's a generational opportunity”
“What we've seen is in the beginning of this credit cycle that credits are at the cyclical tight right now”
“I want to be about AI adoption, not just AI euphoria”
How the episode opens
This is The Markets. I'm Chris Hussey and today is Thursday, June 11th. And we're here on the Goldman Sachs trading floor Muhammad Qubbaj, who is co-head of US Interest Rate Products within Global Banking & Markets.
Q, thanks so much for joining us. Thanks for having me. Okay.
So, last Friday's payroll. This week's CPI. We've gotten a lot of data.
The market took a little shudder. What do you make of it all? Well, first of all, I'm surprised you want to talk about anything other than the Knicks right now.
Well, I don't. But we've got to. Especially being in New York.
The payroll's number was great. CPI was one that didn't add volatility. And it did a couple of things.
We're in a situation here that we had a big shift from a market that was pricing in eases over the past few months, all the way to where we were pricing in a hike. The market is aligned with the data set. Things are looking resilient in the economy out there.
And resilient for now. So, we feel that the market is fairly pricing what the FOMC path should be here on a probability-adjusted basis. Now, a lot of people were pointing to the big sell-off in equities that we had.
I want to be careful with the causation there. It wasn't just one story. Sure, when rates go up, that means that the rates boost to the equity market comes down.
But there were several other things. The Middle East conflict continues to be top of mind, unfortunately, and that adds uncertainty and volatility to the asset markets. And then finally, we've had, you know, a good run in terms of momentum and a high level of positioning.
So, we saw a little bit of a reset in that as well.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai-related stocks
- us interest rates
- bond issuance
- equity market rally
- stocks and bonds outlook
Companies and tickers mentioned
- GS
- GOOGL
- GOOG
- Goldman Sachs
Watch the episode
Watch “The Outlook for AI-Related Stocks and US Interest Rates” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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