US Stocks Defy Bond Market Rout as AI and Earnings Fuel Resilience

This divergence stems from an unwavering appetite for tech giants like Microsoft and Apple, which continue to trade near peak valuations. While rising discount rates typically punish high-growth stocks, the promise of sustained profit expansion in artificial intelligence keeps capital flowing into the sector. Second-quarter earnings for S&P 500 firms grew by a robust 53% year-on-year, providing a structural floor for equity prices that rising yields have yet to break.

Economic data further complicates the bearish narrative. With U.S. job growth accelerating in August and consumer spending revised upward, the anticipated recession remains elusive. Even the Russell 2000, which is historically sensitive to the higher borrowing costs that now plague the bond market, has outperformed the broader index this year. Analysts at Aberdeen suggest that the market has transitioned from fearing a crash to accepting a reality of slower, yet positive, economic growth.

Perhaps most striking is the shift in the stocks-bonds correlation. The traditional inverse relationship—where bonds serve as a hedge against falling stocks—has weakened since the pandemic. With sovereign debt failing to provide its usual safety buffer, investors are opting to stay in equities. As HSBC strategists noted, the diminished efficacy of bonds as a hedge has forced a migration of capital back into stocks, effectively supporting higher valuations even as interest-rate expectations remain elevated.