Wall Street Giant: "US Economy Strong, But Peaked"... Warns of 'Negative' AI Bonds

▲ U.S. Federal Reserve (Fed), Bond Market/AI Generated Image

Despite soaring global interest rates and inflationary pressures, the fundamental strength of U.S. companies remains robust. However, as the economy enters the late stage of its cycle, warnings about the stock market peaking are growing louder.

Michael Contopoulos, a macro strategist at UK asset management firm Janus Henderson, offered a clear stance on market questions regarding whether the recent rapid rise in U.S. Treasury yields is a sign of a hidden recession amidst the artificial intelligence (AI) boom, in an interview with CNBC on September 29 (local time). Contopoulos pointed out, “The net income growth rate of actual companies is accelerating, and as the explosive growth of hyperscalers slows down somewhat, it is actually balancing the overall market growth trend.” He added, “It is true that there are segments struggling with K-shaped polarization and high inflation, but the financial health at the corporate level is extremely sound.”

Macroeconomic indicators also demonstrate fundamental robustness beyond a simple AI investment boom. Contopoulos stated, “The unemployment rate remains at historically low levels, and initial jobless claims are the lowest since the 1960s.” He diagnosed, “The nominal growth rate consistently maintaining at 7% to 8% shows that the U.S. economy is very solid.” While the stock market rally in recent weeks has been concentrated in some large-cap stocks, global markets including Europe, emerging markets, and Japan have outperformed the U.S. over the past 12 to 18 months, indicating a spreading warmth.

Specific market warning signals were also presented to determine whether the Federal Reserve’s (Fed) tightening phase would lead to a recession. Contopoulos explained, “The moment corporate margins are pressured, net income growth slows, and corporate bond spreads widen, that’s a real danger signal.” He added, “Many new AI-related bonds issued over the past 6 to 12 months have already fallen below their issuance price.” He further stated, “The market is currently approaching the peak of the cycle, but it is impossible to predict whether that point will be in 3 months or 12 months,” adding that investors should keep a close eye on yield curve inversions and changes in guidance.

The simultaneous rise in global government bond yields is also expected to make the downward stabilization of U.S. Treasury yields more difficult. As the global economy experiences synchronized growth, the number of investment opportunities offering high interest rates outside the U.S. is increasing, intensifying global competition for capital attraction. Contopoulos analyzed, “If U.S. Treasury yields fall even slightly, investors sell U.S. bonds and move to high-yield overseas assets, thus creating upward pressure that continuously pushes up U.S. Treasury yields.”

[Key Article Summary]

-Janus Henderson’s macro strategist Contopoulos diagnosed the robust health of U.S. companies, citing nominal growth rates of 7-8% and historically low unemployment rates.

-However, he warned that the cycle’s peak could arrive within 3 to 12 months, with many newly issued AI bonds already trading at a loss.

-Due to the global high-interest rate environment and capital competition, structural pressure keeping U.S. Treasury yields from easily declining is expected to persist.

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