AI Rally’s Biggest Risk Is Rates as Treasury Selloff Sets Off Wall Street Alarms

Bloomberg interviews 32 asset managers

Overall investor sentiment is highly bullish

But concern over rising yields is pronounced

"Rates above 5% are very dangerous for stocks"

Global investors are betting aggressively on technology stocks and artificial intelligence plays, but warnings are mounting that higher long-term Treasury yields could shake the equity rally.

Bloomberg reported on May 16 that interviews with 32 asset managers across the US, Europe and Asia showed broadly bullish sentiment across markets, while also underscoring clear concern about rising interest rates.

About 80% of respondents said stocks would outperform other asset classes, including bonds and commodities, over the next three to six months. Roughly half picked big tech companies and AI-related shares as their preferred investments after a seven-week rally that drove the S&P 500 to record highs.

Most of the investors interviewed said a sustained move above 5% in the 30-year Treasury yield would put equities in a danger zone. That yield is already trading around that level.

Alexandre Drabowicz, chief investment officer at Indosuez Wealth Management, said long-term rates above 5% are a very dangerous level for the stock market.

Markets are worried that a prolonged closure of the Strait of Hormuz could lift oil prices, stoke inflation and ultimately drive rates even higher. Selling spread across global bond markets on May 16, pushing long-term US Treasury yields back to levels reached at their 2023 peak.

Concerns about overheating are also building. More than half of the S&P 500's gains this year have come from just four stocks, highlighting how concentrated the rally has become. The Philadelphia Semiconductor Index, or SOX, is trading at more than 25 times forward earnings, well above its 10-year average of 19.

Shin-young Park, New York correspondent, Hankyung.com, nyusos@hankyung.com