Weekly Market Overview

With stock markets in the lull between earnings season and conference season, attention shifted to the bond market last week. There, the wave of selling gained momentum. The Bloomberg government bond index reached its highest level since mid-2008, the U.S. 10-year yield briefly surpassed 4.8%, and in Japan, the 10-year yield climbed above 3% for the first time in thirty years. Three forces are pushing in the same direction: high oil prices due to the resurgence of the conflict in Iran, budget deficits that no one is addressing, and a new competitor for capital in the form of an estimated 1.5 trillion dollars in debt raised by AI companies this year. Every dollar the hyperscalers borrow is not lent to the Treasury.

It remains to be seen whether the response from the Central Bank, via Kevin Warsh, and the Trump administration, via Scott Bessent, will turn the tide. The fact that both gold and bitcoin ended the week strongly following an initial correction in response to Warsh’s Jackson Hole speech suggests that investors believe the line in the sand drawn by Bessent will hold. But it also suggests that this will require greater monetary interventions than originally anticipated.

The stock markets seem to be lending their support to the “debasement trade.” The Trump administration, according to the market, aims to reduce the national debt as a percentage of gross domestic product by focusing on accelerating economic growth. The expansion of AI infrastructure, the development of cutting-edge AI models, and a push to catch up in robotics (including self-driving technology) are instrumental to this effort. The old adage “don’t fight the Fed” has evolved to “don’t fight the Trump administration” in 2026. Despite some turbulence following Jackson Hole, the tech sector ended the week on a strong note, with Nvidia, software companies, and the hyperscalers all in demand this time around. However, the semiconductor sector’s market leadership has clearly faded: “AI losers” have significantly outperformed semiconductors in recent months.

When it comes to stock markets outside the U.S., the lack of enthusiasm is the most striking feature. In Europe, in particular, you have the debt problem without the growth, compounded by widespread political dysfunction, with the AfD and the National Front on the rise. China, on the other hand, is unable to translate growth in industrial production into consumer confidence and domestic demand.

Investors tend to be cautious, bearing in mind that September is traditionally a bad month for stocks and for “risk assets” in general. The longer the current pattern—in which any temporary weakness is immediately bought up—continues, the less comfortable it becomes for those who are underweight in stocks. With relatively constructive news on the geopolitical front, from both Iran and Ukraine, a rally driven by peace agreements that no one was hoping for anymore could well be the “pain trade” that propels the market to new highs.