Investors are lowering their expectations for US growth and buying government bonds as concerns mount over the economy's heavy exposure to the AI trade. The shift comes despite hotter-than-expected growth in the third quarter, with the US economy expanding 3.4 per cent, above the 3.2 per cent forecast by economists polled by Bloomberg.
Bond markets reflect the change. A 10-year Treasury inflation-protected security yield fell to 2.58 per cent this week, its lowest since early September, while the five-year and 30-year yields also erased much of their sell-off. Bond yields fall as growth expectations drop because investors buy debt, betting it will outperform shares.
Stocks have also weighed on sentiment. Weak results from Meta, Alphabet, Amazon and Intel helped push the Nasdaq 100 into correction territory. Alphabet's shares fell 13 per cent on Thursday after its free cash flow turned negative for only the second quarter since going public in 2004. Capital spending rose sharply at the other three companies, and revenue growth had begun to slow in some areas.
Economists are growing wary. Vincent Reinhart of BNY Investments warned that growth is heavily dependent on technology spending, a trend he called global rather than purely American. Robert Sockin of PGIM raised his recession probability from 20 per cent a month ago to perhaps 25 per cent, citing overheating risks. Federal Reserve chair Kevin Warsh pushed back, saying US economic strength was not confined to narrow pockets, but that argument is harder to make now than it was several quarters ago.
Source: Financial Times Companies · Summarized by HeadlinesBriefing