The recent rise in U.S. Treasury yields and the sharp correction in AI-linked stocks have sparked concerns among investors. However, veteran market strategist Ed Yardeni from Yardeni Research believes both developments reflect a healthier market rather than signs of a broader financial crisis.
In an interview with ET Now, Yardeni said the U.S. bond market is simply returning to historical norms, while the ongoing reassessment of artificial intelligence-related stocks is helping cool excessive optimism instead of triggering a bubble burst.
Bond Yields Returning to Normal
Yardeni said the U.S. 10-year Treasury yield hovering around 4.5% does not concern him, as it falls within what he considers a normal range.
“Well, I am not too concerned about 4.5%. I have been thinking that we are back to normal in the US bond market, normal being between 4% and 5%. The abnormality was how low bond yields had gone between the Great Financial Crisis in 2008-2009, through the great virus crisis. So, we are back to normal, and one of the reasons we have seen some upward pressure on the bond yield in the past few days, of course, is that the new Fed Chair, Kevin Warsh, has turned out, in his initial comments, to be more hawkish than anyone had expected. He insisted that he and the rest of the monetary policy committee, the FOMC, were committed to bringing about price stability. And he acknowledged that the Fed has missed its target of 2% for the past five-plus years, and he seems intent on getting down to 2%.”AI Euphoria Is Cooling, Not Crashing
According to Yardeni, the recent pullback in AI-related stocks is a natural correction following months of exuberance.He believes investors are beginning to scrutinize lofty expectations more carefully, resulting in a broader market rotation rather than a collapse in the AI investment theme.
SpaceX Selloff Reflects Reality, Not Panic
Commenting on the complete unwinding of SpaceX’s post-listing gains, Yardeni said the correction represents a realistic reassessment of the company’s prospects rather than a sign of deteriorating investor sentiment.
“Well, I am not too concerned about what is happening with SpaceX. To me, that is just a realistic reassessment of the challenges that SpaceX has ahead of it. The big move to the upside after the IPO for a few days was based mostly on hype about all the projections regarding the business of data centres orbiting around the Earth in space, about what could be accomplished in manufacturing on the Moon. But that is pie in the sky, literally. It is far off, and for now, this is not a company that is actually generating profits. It is still losing money. So, it is a healthy reassessment of that IPO, and maybe that will lead to more realistic pricing of the IPOs for Anthropic and for OpenAI,” he said.
Fed Could Stay Hawkish Despite Easing Geopolitical Risks
While hopes of easing tensions in West Asia have improved market sentiment, Yardeni believes the Federal Reserve is likely to remain focused on inflation.
He said the central bank has already shifted toward a tightening bias and could even surprise markets with another rate increase if inflation remains persistent.
“Well, I have been thinking in a somewhat different direction. Even before Kevin Warsh came out of the latest FOMC meeting and turned hawkish, I had been anticipating that the Fed, at the June meeting which we just had, would pivot from a very easy bias towards a tightening bias. They could have gone neutral, but instead they decided to go for a tightening bias. We have also been thinking that the surprise could be that if the data continues to show a strong economy, with some inflationary pressures resulting from the oil price hike passing through to other areas of the economy, I will not be surprised if there might actually be an increase in the federal funds rate during July,” he said.
“But I would say over the next 12 months, I really do not expect more than one or two rate hikes. The US economy can handle it. But it will be a challenge for emerging economies like India because when the US is tightening, that tends to make things more difficult for emerging economies, especially for their currencies,” he added.
Emerging Markets Could Feel the Pressure
Yardeni added that while the U.S. economy appears capable of absorbing one or two additional rate hikes, tighter American monetary policy could create headwinds for emerging markets.
Countries like India, he noted, may face increased pressure on their currencies and financial conditions if the Federal Reserve maintains its tightening path over the coming year.
Source link
#bond #yields #normal #reality #check #Yardeni
