Stocks Ignore 5% Yields as AI and Consumer Fault Lines Grow

Grant Calloway

Five point two three percent. That is the exact number that printed on the benchmark ten year Treasury note yield on Friday. The highest print since June 15, 2007. And the thirty year reached five point four eight eight percent. You look at those screens and you think, well, the floor should be cracking open. But the S and P five hundred closed up at seven thousand seven hundred forty three point four one, and the VIX, the fear gauge, dropped five point one percent to fourteen point eight seven. This tape is tighter than a drum.

Grant Calloway

Now, why didn't equities take a bath? You had a couple relief valves pop open right when the pressure was building. First off, crude oil. We saw backchannel diplomacy at the UN General Council meeting talking about a phased reopening of the Strait of Hormuz. That, uh, that knocked West Texas Intermediate down two point three percent to settle at ninety two dollars and forty one cents a barrel, with Brent down to one hundred four dollars and thirty two cents. Then you had Treasury Secretary Scott Bessent over the weekend confirming that the United States and China agreed to extend their trade truce by two full months, out to January 10, 2027.

Grant Calloway

So people ask me, Grant, how on earth do stocks hold up with borrowing costs north of five percent? You have to distinguish between two completely different animals: fiscal panic versus genuine growth resilience. When yields spike because investors are terrified of government debt supply, term premium blows out. That hurts. But right now, the term premium hasn't really run away. Yields are elevated because the economy is running surprisingly hot. The Atlanta Fed's GDPNow model is tracking third quarter growth at five point one percent. We just got shipments of core non defense capital goods excluding aircraft, which feeds right into GDP equipment spending, rising zero point six percent in August.

Grant Calloway

But, um, I have to be honest with you. It gives me a cold chill down my spine. Back in the summer of 2007, standing by the post on the New York Stock Exchange floor, we saw the fixed income market screaming bloody murder months before equity guys took their hands out of their pockets. The opening bell is the greatest four hundred milliseconds in capitalism, sure, but you ignore the bond tape at your own peril.

Grant Calloway

Beneath that placid index level, the surface is churning like wild water. Look at the single stocks. Akamai Technologies surged nearly seventeen percent early on after inking a massive seven year, twelve billion dollar cloud infrastructure deal with Anthropic. Microchip Technology popped five point four percent on Friday. The semiconductor space is still acting like the engine of this train.

Grant Calloway

Then you pivot over to the consumer side, and the story turns sour. Nike dropped two percent following a Bank of America downgrade to underperform, with analysts warning that the turnaround is dragging on longer than anyone wanted. Costco, even after an earnings beat, slipped because membership fee revenue growth showed another slowdown. You can see the fault lines forming right between AI infrastructure and everyday consumer discretionary.

Grant Calloway

So here is the standoff. The bulls say earnings are strong, consumer sentiment beat consensus at forty eight point one, and durable goods orders came in flat instead of dropping half a percent like Wall Street expected. But the bears have a real canary in the coal mine this morning. Bloomberg reported that Oracle declared force majeure on a data center under construction due to borrowing and power constraints. If big tech can't finance their AI footprints because debt service is eating them alive, that cracks the whole foundation. And the CME FedWatch tool now shows a sixty six percent probability that the Federal Reserve hikes rates again in October.

Grant Calloway

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Grant Calloway

Looking at the tape today, keep your eyes on the September Dallas Fed Manufacturing Index at ten thirty Eastern, followed by Richmond Fed President Tom Barkin speaking at one thirty this afternoon, and Jefferies reporting earnings. Later this week, the real labor gauntlet begins with JOLTS job openings, ADP, and Friday's September nonfarm payrolls. Keep in mind, this commentary is purely for educational purposes and is never personalized investment advice. Keep your head on a swivel out there.