Is AI growth helping markets look past oil and rate hike scares?

US equities (^DJI, ^IXIC, ^GSPC) are feeling optimistic as the calendar turns to October. But can interest rate hike fears and shocks from rising oil prices (CL=F, BZ=F) stymy growth, or will AI growth continue to drive markets?

Today's Market Hang panel consists of Host Turney Duff, Milk Road co-owner Kyle Reidhead, Clocktower Group chief macro strategist Eric Wallerstein, and Washington Crossing Advisors senior portfolio manager Chad Morganlander.

I think very simply you have a combination of two wars, commodity prices are higher than they were in 22, and you have rate hikes globally, and that's just a bad combo for equities, it's a bad combo for markets. So, I don't think everything is going to come unhinged and totally fall apart and we'll enter a recession, but I'm I'm I'm definitely bearish on the market and I could easily see like a garden variety bear market either starting now or happening next year. Um, but that's kind of my Yeah. is where I am right now.

Um, well, I mean, your your tweet was perfect uh, to encapsulate that. Uh, Kyle, I think you're you're on the other side of that argument, correct?

Yeah, I think the market's kind of seeing through a lot of that and as you mentioned, earnings are going to be through the roof uh for for Q3. Um, and and I think that's what's driving the market right now is earnings. Uh if you look at what's going on, everything is all about AI. And as long as OpenAI and Anthropic continue to generate more revenue, then I think the market kind of sees through a lot of what's happening. I don't think rate hikes matter because the growth is just so fast and so big uh in in AI and in within the CAPEX that it, you know, 25 bips here, 25 bips there, it doesn't actually really move the needle. Uh so I'm not overly worried. Uh, you know, oil was definitely a concern, but as you said, it's already kind of coming back down and the market has seen through it all. We had bonds or or yields uh you know, at at record highs. We had oil at what whatever it was, $100, $110. and the market kind of just doesn't really care. And so I think we're now past a lot of the macro fears and I think the next part is, you know, downside in oil, downside in yields and so I think, you know, maybe that's going to bring actually an upside in in equities. So, I kind of take the other side of it.

So we're slightly overweight equity risk within our tactical allocation, but it depends on what market we're talking about here because it's been narrow leadership. It's been all AI related companies in different sectors, either it be the utilities or the industrials or for example some of the hyperscalers or whatnot. Uh, here's the reality. Credit spreads historically going back since we were kids after 33, 35 years of looking at it, are even even though they widened out a bit, high yield credit spreads are historically tight. Back to where it was in 2007 and in '99. So what that means is that anyone that wants to get money, can get money. Financing is super easy because capital spending is gigantic, a tsunami wave that's creating operating margin expansion, creating earnings expansion, which leads to the bullish case for that narrow defined kind of companies. If we are to see, whenever that is, any kind of modification or even a company like Microsoft saying, you know, 2008 we're going to start slowing down our CAPEX, then forget about it. Okay, game over.