Is the AI investment frenzy poised for another push? The Fed's rate hike finally lands, and the "most painful moment" for US Treasuries welcomes contrarian buying.

Title context: Is the AI investment frenzy poised for another push? The Fed's rate hike finally lands, and the "most painful moment" for US Treasuries welcomes contrarian buying. Text: Against the backdrop of a recent surge in long-dated Treasury yields of 10 years and above driven by high oil prices, and with the Federal Reserve implementing its first rate hike since 2023, the asset management division of JPMorgan Chase, Wall Street's largest commercial banking giant, is once again flocking to long-dated government bonds in the United States, Japan, and Australia. As major global central banks, including the Federal Reserve, re-tighten monetary policy and fiscal deficits continue to climb, the rising risk compensation for holding long-term debtnamely the term premium on long-dated Treasuriesis jointly testing the trajectory of the 10-year Treasury yield, known as the "anchor of global asset pricing." It has also attracted contrarian allocation capital on Wall Street, which is expected to significantly cool market panic over long-bond selling and surging yields. If long-dated US Treasury yields of 10 years and above achieve a "2023-style smooth peak and decline," it is very likely to indirectly propel global stock markets to continue advancing toward a bull market curve under the strong earnings growth trajectory driven by the AI computing power theme. For the global bull market centered on the massive wave of AI computing power and AI applications, the "anchor of global asset pricing" breaking above the 5% threshold can be described as a major headwind at the valuation and investment sentiment levels. If JPMorgan leads contrarian buying back into the Treasury market at the "most painful moment for the bond market," thereby pushing the yield curve lower, it would undoubtedly significantly weaken this headwind for the AI bull market. In other words, if contrarian buying from major Wall Street investment institutions such as JPMorgan Asset Management drives long-end Treasury yields lower, while AI-related corporate earnings expectations maintain a strong growth trajectory and the equity risk premium does not rise significantly, it would help alleviate the interest rate headwind on valuations and investment sentiment, providing support for the continuation of the AI bull market. However, this does not mean the headwind has completely disappeared or that stocks are certain to rise substantially. Bob Michele, Chief Investment Officer of the asset management division and head of global fixed income, said his core judgment is not that "central banks are about to turn dovish," but rather that tightening actions by the European Central Bank, the Federal Reserve, and subsequently the Bank of Japan are expected to rebuild anti-inflation credibility, thereby stabilizing long-dated Treasury yields on the basis of lowering long-term inflation expectations. If Middle East tensions also stabilize, long-end yields could peak and then decline. Acting at the "most painful moment"! JPMorgan buys long-dated Treasuries after the bond market experiences its "most painful moment" Bob Michele of JPMorgan's asset management division said his team has begun buying long-end government bonds in the United States, Japan, and Australia, calling current prices "just too cheap" and declaring that the bond market has reached its "most painful moment." "The dominoes are starting to fall," Michele said in a media interview on Wednesday US Eastern Time. He noted that a series of central bank actionsstarting with the European Central Bank's rate hike last week, followed by the Federal Reserve, and finally the Bank of Japan possibly following suit on Fridaythese rate hikes landing and anti-inflation credibility are the key DRIVE supporting the bond market. Another key factor is that, as midterm elections approach, Middle East tensions may stabilize. Michele, Chief Investment Officer of JPMorgan Asset Management and head of global fixed income, said that a perfect combination of monetary policy tightening and calming Middle East geopolitical tensions would signal that yields have peaked. US Treasuries recently suffered a fierce selloff, pushing 10-year and 30-year Treasury yields to multi-year highs before the Federal Reserve implemented its first rate hike since 2023 on Wednesday local time. After the Fed announced the rate hike, Michele said the selloff at the long end of the yield curve had been excessive. Michele said the longer-dated Treasury buyback program launched last month by US Treasury Secretary Scott Bessent is an important stabilizing force; he added that Bessent "has enough ammunition to do more whenever he wants." He also warned that the rapid climb in long-end US Treasury yields of 10 years and above "highlights the market's current feeling that the Federal Reserve has lost control," and said this renewed rate hike should help Fed monetary policy decision-makers "re-establish that they are still in control." Oil price storm drives yield surge, contrarian buying force arrives below 5% Treasury yields, is the AI bull market about to set sail again? Continued disruptions to Middle East energy transportation and increasingly severe conditions facing energy exports are important drivers of this round of global long-bond repricing. After seizing the port of Mocha and Perim Island, Houthi forces further took control of the Greater and Lesser Hanish Islands, expanding threats to shipping through the Bab-el-Mandeb Strait and the Red Sea; Saudi Arabia continued airstrikes on Yemen, and the East-West oil pipeline tasked with transporting oil bypassing the Strait of Hormuz was also attacked and shut down. Observable vessel traffic through the Strait of Hormuz on September 15 was only 4 ships, and the suspension of crude oil loading at Yanbu port further compressed Saudi Arabia's export channels. However, news that Saudi Arabia increased supply via Oman has partially eased supply concerns: on September 16, Brent and WTI crude oil futures fell 2.7% and 3.2%, respectively, closing at $105.83 and $102.43 per barrel. The energy shock remains, but what determines whether the inflation trade can cool is actual transportation and supply recovery, not merely the intensity of conflict news. On September 16, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%4.00%, implementing its first rate hike since 2023. A day earlier, the 10-year Treasury yield touched 5.041% intraday, a new high since 2007; Japan's 10-year government bond yield also reached a 30-year high of about 3.04%, while Japan's 30-year government bond had already approached a record closing level around 4.18% as early as September 1. Central banks re-tightening policy and rising risk compensation for holding long-term debt are jointly testing the "anchor of global asset pricing," and have also attracted contrarian allocation capital. Against this backdrop, Bob Michele of JPMorgan Asset Management has begun buying long-end bonds in the United States, Japan, and Australia. From the perspective of the nominal yield starting point for new funds, the allocation appeal of long-dated US Treasuries of 10 years and above near 5% has indeed increased, but "locking in cash flow" and "trading a decline in yields" are two different logics. For investors holding a single ordinary fixed-rate government bond to maturity, provided principal and interest are paid as agreed, the contractual coupon and the face value repaid at maturity can be determined: for example, buying a government bond at par with a 5% coupon indeed means receiving interest each year fixed at 5% of the initial principal, and a rise in market yields midway will not reduce that coupon; but the 5% yield to maturity quoted by the market does not mean that all purchasable bonds have a 5% coupon rate. For active managers, the appeal also includes potential capital gains from falling yields. Based on a first-order approximation using modified duration, assuming a portfolio duration of 8 years, a 50 basis point decline in yields would produce a price gain of about 4%; a reverse 50 basis point rise in yields would produce a price decline of about 4%, excluding coupons, convexity, and other changes. A high starting yield provides better conditions for collecting income, but it does not eliminate risks such as market value volatility and inflation eroding purchasing power; therefore, in the view of some strategists, while acknowledging the value of long bonds at present, it cannot be asserted that long-dated government bond yields of 10 years and above have already peaked. Long-term nominal yields can be approximately understood as the average of expected future short-term nominal rates plus the term premium. When central bank tightening enhances credibility that inflation will be controlled, even if short-end rates rise in the near term, the market's required compensation for longer-forward rates and the risk of holding debt may still decline. This is precisely the mechanism by which Michele's contrarian trade can hold. The underlying mechanism of "rate hikes may benefit long bonds" is the repricing of the future interest rate path and term premium, not that rate hikes themselves automatically push long-term yields lower. Bessent's buyback program can provide support by improving the liquidity of old bonds, but Treasury buybacks are not equivalent to central bank quantitative easing and cannot by themselves eliminate fiscal financing pressure; the impact on the market's net duration supply also depends on accompanying new debt issuance arrangements. For the global stock market bull market trajectory since 2023 brought about by the AI investment wave, the classic "AI bull market continued carnival chain""long bond value emergesyield pressure easesAI computing power theme drives broad benchmark index earnings expansion and thus broader valuation space"is a conditionally valid transmission chain. Deducing from pricing mechanisms, if the decline in long-term yields mainly comes from energy supply recovery, easing inflation risk and term premium, while credit spreads remain stable and earnings expectations do not deteriorate, it would help ease pressure on equity discount rates and corporate financing costs; conversely, if the rise in long bonds mainly reflects recession expectations, stocks may simultaneously face downward revisions to cash flows and a rising risk premium, and may not necessarily rise in tandem. High yields are attracting contrarian buying in long bonds. If such buying and cooling inflation risk reinforce each other, it could create conditions for the continuation of the AI earnings-driven super bull market. Long-bond stabilization is a potential catalyst; earnings delivery and valuation discipline determine how far the bull market can go. In a research report released last weekend, Goldman Sachs laid out the "earnings trump everything" bullish logic that the long-term US stock market bull run since ChatGPT swept the globe in 2022 will continue stronglyforecasting S&P 500 earnings per share of $340 in 2026, implying a substantial year-over-year increase of 24% on a high base; and further reaching $385 in 2027, up 13% year over year. At the same time, the forward price-to-earnings ratio fell from 22x at the start of the year to 19x, indicating that the interest rate headwind has already been reflected through valuation compression. Its historical sample shows that in the three months after the start of seven rate hike cycles, the S&P 500 fell by an average of 2%, but twelve months later it rose by an average of 9%. These data do not yet support the idea that "the Federal Reserve starting to hike rates necessarily ends the bull market trajectory," but they cannot be used 100% to prove that future investment returns will necessarily replicate history; Goldman Sachs emphasized in the report that what really matters is whether the earnings delivery trend can offset a further decline in valuation factors. In the AI data center computing infrastructure chain, the strong demand for computing resources brought by AI agents may accelerate diffusion to multiple segments including GPU/ASIC, HBM, server DRAM, enterprise-grade SSDs, high-speed optical interconnect equipment within data centers, data center CPUs, and the data center power chain. At the same time, the AI computing power industry chain undoubtedly already has verifiable earnings support: Nvidia's data center revenue in the second quarter of fiscal 2027 reached $89 billion, up 117% year over year; adjusted diluted earnings per share were $2.22, up 120% year over year, indicating that growth is not merely staying in the capex narrative but has also been reflected in earnings. The strong AI computing demand support linked to the AI computing power industry chain is reflected not only in the strong performance of industry leaders, but also significantly in South Korea's continued record semiconductor exports and long-term capacity agreement arrangements. South Korean customs data show that semiconductor exports from September 110 already reached $16.5 billion, up 270% year over year, while August semiconductor exports reached $46.65 billion, up 209% year over year. Another Wall Street giant, Jefferies, recently said that driven by the dual engines of the AI investment frenzy and AI-related corporate earnings exceeding expectations, the S&P 500 is expected to soar to 8,000 by the end of 2026 and further reach 9,000 in 2027. Jefferies' core logic is clear and powerful: in a cycle where AI-driven earnings growth exceeds the historical average by more than twofold, fighting the earnings trend is dangerous. Jefferies' base-case forecast of 8,000 for the S&P 500 in 2026 is based on earnings per share (EPS) reaching $373 (up 35% year over year, far above the market consensus of 29%) and a price-to-earnings ratio of 21.5x.