After four months of volatile correction, the Nasdaq has hit a new high; the 'Magnificent Seven' have receded, while biotech and AI agents have taken over. What is the core logic driving this rotation in the U.S. equity market?

At Friday’s (September 25) New York close, the yield on the benchmark U.S. 10-year Treasury note fell by 3.74 basis points to 5.1604%. Earlier that day, it had approached the Q2 2007 high of 5.3228%; for the week, it rose about 17 basis points overall, trading within a range of 4.9204%–5.2254%. Investors are now beginning to ask whether 6% could become the new psychological threshold. Mike Bell of BlueBay Asset Management argues that 5% is more of a psychological benchmark than an automatic stock sell-off trigger. JPMorgan analysts contend that, given structural shifts in the global economy, the true yield level that meaningfully suppresses equities may have already shifted upward—to 5.5%–6%. Paul Jackson, Head of Global Asset Allocation Research at Invesco, estimates that if the 12-month average yield on the 10-year U.S. Treasury rises to 4.72% and continues climbing, global equities may begin to come under pressure; the current 12-month average stands at approximately 4.34%. He has already begun reducing equity exposure and reallocating some capital toward higher-coupon Treasuries. Neil Berrill of UK active asset manager Premier Miton observes that equity markets have yet to show signs of collapse—perhaps because investors have not yet incorporated yields above 5% into long-term corporate earnings forecasts. As such, 5% is no longer viewed as the ultimate risk threshold. Should the 10-year Treasury yield stabilize above this level, markets will increasingly focus on the possibility of a 6% yield. Edward Harrison, Senior Editor for Macro and Financial Markets at Bloomberg, writes: “Before monetary tightening truly takes effect, we need to set our target for long-dated Treasury yields at 6%.” The current real yield on 30-year Treasuries is slightly above 3%; if it rises toward 3.5%, combined with an inflation expectation of roughly 2.5%, the nominal yield on 30-year Treasuries would reach 6%. If ongoing conflicts, AI-related capital expenditures, and fiscal deficits persist, this represents a reasonable medium-term target. ● Second test: Can $2 trillion in global AI investment generate cash flow? Nvidia’s sustained profitability questioned Rising Treasury yields may increase financing costs for AI infrastructure. The International Monetary Fund (IMF)’s latest annual report cites external estimates indicating that privately led global AI investment could exceed $2 trillion by 2026. Yet the IMF cautions that an increasing share of these high-cost investments relies heavily on debt financing. Should future returns fall short of expectations, this could trigger cascading effects—including asset valuation adjustments, wealth erosion, and corporate layoffs. According to a Goldman Sachs research report, under a baseline assumption of 15% annualized return on invested capital (ROIC), six major U.S. hyperscale cloud providers—Alphabet, Microsoft, Amazon, Meta, Oracle, and SpaceX—must collectively generate approximately $1.42 trillion in revenue between 2028 and 2030 to deliver reasonable returns on their ‘Phase Two’ (2026–2027) AI compute capital expenditures. Asset manager Robeco believes that, following years of valuation expansion, equity markets may be entering a phase of “lower P/E ratios and higher earnings,” where future returns will depend increasingly on actual earnings delivery—not further valuation expansion.

From hedge to risk source: For the first time, the IMF has grouped AI-driven exuberance alongside oil shocks and debt burdens as part of a ‘risk portfolio’.

The International Monetary Fund (IMF) is redefining its characterization of the AI boom. On the eve of hosting next week’s global economic summit, the IMF has placed the “imbalanced AI boom” alongside protracted energy shocks and record-high debt accumulation, declaring that the world faces a ‘risk portfolio’ formed by these three forces—and calling urgently for coordinated government action. This marks the latest statement by IMF Managing Director Kristalina Georgieva, whose most significant departure from prior messaging lies in elevating the AI capital-spending surge to the same tier as oil crises and sovereign debt burdens. Previously, the IMF had described AI and data center investments as partially offsetting energy shortages caused by Middle East conflicts; today, that ‘hedging force’ has been recast as one of the risks itself. The IMF’s core warning centers on how the confluence and transmission of these three risks could amplify shocks: energy disruptions push up inflation and interest rates, which in turn exacerbate debt burdens already nearing critical thresholds. With global public debt projected to surpass 100% of GDP by 2029—two years earlier than previously anticipated—this feedback loop grows increasingly taut. AI: From hedge to risk source In this latest statement, AI’s role undergoes a pivotal shift. The IMF had previously noted that AI and data center investments offset part of the energy-shortage impact; now, Georgieva’s language refers to an “imbalanced AI boom,” placing it on equal footing with energy shocks and debt accumulation within the global ‘risk portfolio.’ This signifies that the AI capital-expenditure boom has, for the first time, shifted from being discussed solely as a ‘growth engine’ to being squarely included in the discourse around ‘sources of risk.’

IMF Says AI Investment Propping Up Global Growth, War and Debt Threaten Outlook

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The IMF forecasts global growth above 3%, driven by AI investment despite risks from Middle East conflicts and high oil prices. The report highlights energy shocks and debt as key threats impacting major economies and chemical production sectors.

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