AI Safety Check, Looking for Market Signals, Economic Impact of AI 8/18/26

**SPEAKER_1** (0:00)
How do you turn your strategy into action and action into impact? Bold leaders do it through transformative strategy and transactions, ones that work in practice, not just on paper. At EY Parthenon, we use an investor mindset to help you create value. How?
By combining deep sector experience with AI-powered technology, so you can reimagine your business for tomorrow while building it today. Shape your future with EY Parthenon.
Learn more today. Courage.

**SPEAKER_2** (0:30)
I learned it from my adoptive mom.

**SPEAKER_1** (0:32)
Hold my hand.

**Rick Santelli** (0:33)
You hold my hand.

**SPEAKER_4** (0:36)
Learn about adopting a team from foster care at adoptuskids.org. You can't imagine the reward. Brought to you by AdoptUSKids, the US Department of Health and Human Services and the Ad Council.

**Kelly Evans** (0:50)
A global bond route, a chip sell-off and rising oil prices. Welcome to Power Lunch. I'm Kelly Evans alongside Robert Frank. Brian will be back tomorrow.
And global bond yields are hitting multi-decade highs as the Iran War reignites inflation fears. Talk about what that means for your money as energy and health care buck the trend and hit record highs.

**Robert Frank** (1:08)
And retail earnings are ringing up with Home Depot kicking off a busy week. We're going to break down the stocks that could prove to be this week's best buys.

**Kelly Evans** (1:16)
Plus two big interviews on the future of AI. Former OpenAI researcher Daniel Kokotajlo on the risks outpacing regulation. And entrepreneur and former presidential candidate Andrew Yang with a radical idea to tax AI, not workers.

**Robert Frank** (1:32)
And we begin with investors going all in on risk. Bank of America's latest fund manager survey showing that sentiment is at its third most bullish level since 2022 with global equity allocations at their highest level in five years. But there's one big fear. Yep, that's AI. Global semiconductors are the market's most crowded trade, while an AI bubble is now the biggest tail risk. And yet, 71% of fund managers say they don't expect an AI hyperscaler to cut capex this year. So, do these numbers point to confidence or complacency? Binky Chadha is chief global strategist at Deutsche Bank and Paul Hickey is co-founder of Bespoke Investment Group. Binky, Paul, great to see you guys. Good to be here.
So what do you make, I want to start with today's events around the bond market and how that could affect the AI trade. What do you see in that?

**Paul Hickey** (2:23)
So I mean, I think what you're seeing is as yields rise, it just becomes, you have the alternative of bonds becoming slightly more attractive relative stocks at the margin. But we're seeing a gradual increase.
There's all sorts of reasons given for the rise in yields, but I think it's just you have such massive demand for companies taking on debt, that more supply equals higher.

**Robert Frank** (2:47)
A lot of supply. Yeah.

**Paul Hickey** (2:48)
So I think it's crowding out and I don't think it's necessarily been, you know, it's been a gradual increase at this point. So it's not the sudden moves in yields are what really.

**Robert Frank** (2:57)
Which is interesting because when we think crowding out of the bond market, we think the treasury and government issuing bonds is going to crowd out private sector. In fact, we could be seeing the opposite right now.

**Binky Chadha** (3:09)
What I would say is, you know, there's very strong demand for capital, whether we're talking about AI, whether we're talking about equities, whether we're talking about bonds, but the demand is there and I would say the supply is kind of endogenous, really.

**Paul Hickey** (3:22)
Yeah, and there's a lot of money out there, obviously, because these companies aren't having any trouble raising capital when they go into the debt markets or the equity markets.

**Robert Frank** (3:31)
And is that having an impact on equity markets? Not yet, right? And is there a point at which bond vigilantes and rising yields start to impact the equity markets?

**Paul Hickey** (3:41)
I think at some point you could see that. Again, you would have to see a sudden move, but I think at this point here, the overall numbers, we're not seeing inflation numbers. It's high by all stretch, but the core CPI continues to gradually decline. The last month, CPI was the core, was the lowest in a couple of years. So I think all this worry that we have to really, the Fed has to hike rates and become ultra aggressive as the inflation numbers continue to ease lower. And the city economic surprise index had its largest like three week drop in two years just now. So the economic data isn't really necessarily, I know Atlanta Fed GDP now is pointing to a strong number, but the data relative to expectations hasn't been.