Bank of America: The bond market has become the “most dangerous variable” in the AI bull market! If liquidity tightens, it will be difficult to support earnings reports that exceed

Bank of America: The bond market has become the “most dangerous variable” in the AI bull market! If liquidity tightens, it will be difficult to support earnings reports that exceed expectations.

Financial Associated Press, July 27 (Editor Li Ying) The recent AI market in the U.S. continues to affect the global market. Michael Hartnett, chief investment strategist of Bank of America, warned in the latest report released today: The bond market is becoming the main source of uncertainty in this round of AI bull market.

Bond market pressure overwhelms earnings support Hartnett summarized the current market environment as FCI>EPS, that is, the negative impact caused by tightening financial conditions has fully exceeded the support for the stock market from improvements in corporate profits. Hartnett's report pointed out that the nominal yield on the 30-year U.S.

Treasury bond rose to 5.2%, a new high since 2007; the real yield rose to 3%, hitting the peak since November 2008; and the price of U.S. technology corporate bonds fell back to a two-year low.

The simultaneous weakening of the three indicators means that market financing costs are systematically rising, and this risk has not yet been fully reflected in stock pricing.

The report mentions: Since 2026, global central banks have completed 23 interest rate hikes, and Bank of America predicts that there will be 18 more interest rate hikes around the world this year; the market predicts that the probability of an interest rate hike at the Federal Reserve's interest rate meeting on July 29 has risen to 38%, and the September interest rate meeting has been fully priced in by the market.

Hartnett pointed out that the disorderly rise in bond market yields may force the Federal Reserve to curb inflation expectations by raising interest rates to curb the disorderly surge in long-term interest rates. However, expectations of interest rate hikes are undoubtedly negative for risky assets such as stocks.

He also pointed out that even if the White House is currently inclined to maintain the stability of the capital market, there is still the possibility of acquiescing to the Federal Reserve to raise interest rates in the hope of cooling down the overheated stock market through liquidity tightening; if this situation occurs, the capital market may be under significant downward pressure.

In the report, Hartnett reminded investors to closely follow a set of bull-bear boundary signals: if the current bull market combination of "rising yields and strengthening bank stocks" flips into "higher yields and falling bank stocks", it will directly trigger a large-scale deleveraging of risky assets such as stocks.

"Rising yields and stronger bank stocks" means that rising interest rates are driven by economic prosperity; if it changes to "rising yields and falling bank stocks", it means that the market is worried about the risk of credit contraction and economic downturn caused by high interest rates, and passive tightening of financial conditions, which can easily induce deleveraging of risky assets.

Who will pay for the AI carnival? Bond market pressure has been transmitted to the AI track.

Credit default swap (CDS) prices for major hyperscale cloud computing giants soared to record highs, and credit spreads continued to widen; bond investors began to “vote with their feet,” and the market began to question whether the ongoing wave of hot AI capital expenditures could deliver expected returns.

The rise in CDS prices means that the market believes that the risk of corporate debt defaults has increased, and investors require higher premiums before they are willing to take credit risks. Credit spreads refer to the premium of corporate bond yields relative to U.S.

Treasury yields of the same period, and widening spreads represent rising market concerns about corporate credit risks. The market mentality has changed significantly: before, funds focused on whether technology companies can make profits.

Now the core question becomes "who will continue to bear the high investment." Google and Intel delivered solid financial reports but still suffered from sell-offs.

The market is worried that once the bond market stops providing low-cost funds for the expansion boom of the AI industry, sky-high-priced memory chips and a large number of cutting-edge large models that have not yet made a profit will face a serious funding gap.

Goldman Sachs derivatives trader Brian Garrett also issued a reminder for two consecutive weeks: The core risk of AI stocks does not necessarily come from within the stock market, but is hidden in the bond market.

He also pointed out that the S&P 500 Index can no longer reflect the true performance of individual stocks, with market dispersion rising and internal divisions within sectors continuing to intensify.

The industry pointed out that for this round of AI bull market, corporate profits are still important, but as the industry’s capital expenditures are highly dependent on debt financing and bond investors continue to demand higher risk compensation, pressures on valuation, credit and liquidity are accumulating.

Whether the subsequent market can continue, the key may no longer be whether chip companies can deliver better-than-expected financial reports, but whether the bond market can continue to provide low-cost funds for a new round of expansion of the AI industry.

#Stocks #Google #Intel #AI #Semiconductors