Signals & Noise: Earnings Over Elections

PodcastGlobal Research Unlocked—Oct 2

The speaker expects cloud sales to overtake AI spending in the second half of 2027 and sees productivity supporting hyperscaler margins. She argues that the impact of higher rates on equities depends on their cause, while inflation and long-term yields pose particular risks to growth stocks. Her outlook also favors earnings over midterm politics, anticipates medium-term Treasury yield stabilization, and points to weak long-term expected returns for the S&P 500.

Corporate Earnings Interest Rates Inflation Technology Stocks Equities Market Valuations

Preview · 2 more points in the app

Read the Full Summary

Key Takeaways

The speaker expects long-term Treasury yields to stabilize over the medium term as the Fed raises rates until inflation subsides, and argues that a ceiling on 10-year yields could benefit hyperscalers that raised capital when rates and credit spreads were low.

The speaker says higher rates can hurt growth stocks through higher borrowing costs and discount rates, particularly given their large weight in the S&P 500. But if rates rise because of growth, productivity, and deregulation, she sees potential support for cyclicals and some growth-oriented stocks.

The speaker argues that profits matter more than midterm politics for U.S. equities and that political gridlock could prompt a positive knee-jerk reaction in the S&P 500. That near-term view contrasts with her long-term models, which imply returns near 0% for the index over the next decade, while she considers 10-year Treasury yields at 5% attractive on a risk-adjusted basis.

TECHNOLOGY

Cloud Outlook — The speaker forecasts that cloud sales will overtake AI spending in the second half of 2027 and expects productivity to keep driving hyperscaler margins. She also argues that a ceiling on 10-year Treasury yields could benefit these companies, which raised capital when interest rates and credit spreads were low.

“We also upgrade communication services, which is dominated by two hyperscalers on what we see as better macro and micro. So hyperscalers are obviously impacted by rising interest rates…”—

MARKETS

Growth Stock Risk — The speaker argues that inflation and long-term interest rates pose particular risks to growth stocks, which make up a large portion of the S&P 500. Higher borrowing costs and discount rates weigh more heavily on long-duration stocks.

“Higher inflation and long rates are really what was the big risk to some of the growth stocks that make up a big chunk of the S and P 500…”—

FORECASTS

Gridlock Rally — The speaker argues that profits matter more than midterm politics for U.S. equities. She says political gridlock could trigger a positive knee-jerk reaction in the S&P 500.

“We think midterms are more noise than signal and profits really matter more than politics for US equities…”—

Yield Stabilization — The speaker says long-bond allocations are at four-year lows, while $8 trillion sits in cash that is negative-yielding in real terms. She expects Fed rate hikes to continue until inflation subsides, suggesting medium-term stabilization in 10-year Treasury yields.

“Allocations to long bonds are at four year lows. They're reviled, but there's 8,000,000,000,000 sitting in cash that's currently negative yield when you think about it on a real basis…”—

Midterms And Market Signals

Subramanian expects earnings to matter more than midterm politics, with gridlock generally supportive and any election-driven selloff in commodities or technology likely temporary.

Equity Returns And Valuations

The team raises its year-end S&P 500 outlook but still expects a better entry point, sees inflation as a risk to valuations, and favors large-cap value over the coming year.

Rates And Hyperscaler Growth

The equity impact of higher rates depends on their cause; productivity and growth support stocks, while cloud sales are expected to surpass AI spending in late 2027 and lift hyperscaler margins.