Weekly Investment Update (09/25/2026)

If you had told investors a few weeks ago that the 10-year Treasury yield would rise sharply, oil would move above $100, the Fed would hike rates, and geopolitical risks would intensify, most would have expected equities to be much lower. Instead, the market has held up remarkably well.

Part of the explanation is that markets are forward looking. The question is not simply where oil and rates are today, but where they are likely to be six months from now. It is plausible that we are closer to peak pressure in both, given a more benign inflation outlook and strong incentives on all sides to avoid further escalation in the Middle East.

The other important support has been renewed confidence in the AI cycle. Meta’s Muse launch has been a meaningful catalyst, with strong early adoption reinforcing the idea that increasingly capable AI products can drive real consumer demand and, ultimately, monetization. That has helped offset some of the pressure from higher oil and interest rates and has revived confidence that the enormous infrastructure buildout still has demand behind it. The benefits extend beyond technology, with UBS estimating that every one percentage point of GDP growth from direct AI investment is associated with roughly another 0.5 percentage point through broader investment spillovers.

That resilience is encouraging, but it also highlights the risk: both the market and, increasingly, the economy are becoming more dependent on the AI cycle continuing.

Strong Economic Growth Is Repricing the Bond Market

What is happening: Treasury yields rose across the yield curve this week, with the 10-year Treasury yield jumping 19 basis points on Wednesday in its largest single-day rise since the tariffs of April 2025. Two-, 10-, and 30-year yields are now at 4.88%, 5.17%, and 5.47% respectively, with the 30-year briefly touching 5.50% on Thursday, its highest since 2004. Five-year yields crossed 5% for the first time since 2007.

The catalyst was a stronger-than-expected U.S. business activity survey from S&P Global. Its composite index of output rose from 55.3 to 58.4, the fastest expansion in over five years, with hiring at multiyear highs. The Federal ReserveBank of Atlanta now estimates third-quarter growth at an annualized 5.1%, the fastest since the pandemic recovery. Fed Governor Michael Barr added to the upward pressure, saying further rate increases would likely be needed to return inflation to target. Bond markets now price a two-thirds chance of another federal funds rate rise in October, days before the midterm elections.

Why it matters: Ten-year yields are up almost a full percentage point this year, though almost none of that reflects higher expected inflation, which in large part is unchanged over three years. The increase is instead in real yields — the return investors demand above expected inflation — which, at 2.82%, are the highest since 2008. This suggests the market is repricing the strength of the economy and the level of interest rates it can sustain, rather than one losing faith in the inflation outlook.

A higher cost of capital is unwelcome, but not necessarily enough to derail economic growth given the tailwind from hyperscaler capital spending. The S&P 500 is up 12.6% this year, driven by earnings growth, with third-quarter earnings expected to grow close to 30%. Valuations have compressed, with the index now trading at a price-to-earnings ratio of 19, down from 22 in January. Equities have so far absorbed higher yields because earnings have more than compensated, which is what one would expect if the move reflects a stronger economy rather than a deteriorating one.

Higher rates are nonetheless weighing on parts of the economy, most visibly housing. Thirty-year mortgage rates, which track long-term yields rather than the federal funds rate, moved back above 7% this week, and September applications fell to their second-lowest monthly level in three decades. New home sales rose 6.4% in August to an annualized 684,000, but builder sentiment weakened in September, and more builders are cutting prices to support demand. Elevated yields also keep existing owners locked into cheaper mortgages, suppressing transactions and residential investment. The result is an economy expanding strongly on the strength of corporate spending while households begin to feel a pinch, a divergence Bessemer portfolio managers are watching closely given how much the U.S. economy rests on the consumer.

Bessemer does not expect a prolonged tightening cycle, and upcoming data are unlikely to support the number of increases currently priced into the market. The main risk is a further increase in oil prices, as we noted last week, and with oil hovering near $100 and the Middle East conflict still unresolved, that risk remains. Bessemer portfolio managers added modestly to duration earlier this month. Although bond returns may be uneven in the near term, today’s higher yields improve their long-term return potential. Bessemer also remains overweight equities, supported by strong corporate earnings.

Trump-Xi Summit: Setting a Positive Tone for Future Progress

What is happening: President Trump hosted President Xi Jinping this week in Washington, D.C., marking the Chinese president’s first state-side visit in 11 years. 

The main outcome was a two-month extension of last year’s Busan trade agreement, pushing the deadline to January 10. While the extension was short of expectations for a three- to six-month extension, it spans two summits attended by world leaders, Asia-Pacific Economic Cooperation (APEC) in Shenzhen on November 18-19, and the Group of 20 (G20) in Miami on December 14-15, which both sides confirmed they would attend and “support each other” in hosting. 

The original Busan agreement cut tariffs on Chinese imports and suspended some technology-related restrictions as well as measures aimed at China's maritime, logistics, and shipbuilding sectors, such as port fees. China had removed some retaliatory tariffs and agreed to resume purchasing soybeans from the U.S. 

On AI, Xi called for continued dialogue and guardrails against "abuse and malicious use," echoing Bessent's earlier confirmation that a formal U.S.-China AI dialogue mechanism would be established. The summit did not establish an AI hotline, which could help manage incidents after they occur, rather than only preventing them.

On Taiwan, Xi pushed the U.S. to explicitly oppose independence — more direct than at the May meeting, but more restrained in tone than his prior warning that the issue risked collision or conflict. The official U.S. position is that Washington “does not support” Taiwan independence. 

Why it matters: While light on substance, the summit maintained the constructive tone established at the Trump-Xi meeting in May and reinforced the emphasis both sides have placed on keeping the U.S.-China relationship stable. The U.S.-China relationship is an increasingly competitive one, with China a primary competitor in AI and the broader tech landscape. China also retains leverage in its critical mineral supply, Treasury holdings, and issues related to the Iran conflict.

We now turn to the upcoming APEC and G20 summits before year-end for progress on unresolved issues, such as agriculture, Boeing aircraft, energy, and critical minerals. Regarding AI, Bessemer is also monitoring potential legislation affecting semiconductors and semiconductor capital equipment, such as the AI Diffusion rule and MATCH Act.

Rhetoric surrounding Taiwan will also be closely watched, as Trump has delayed new arms sales to Taiwan this year and has described the issue as a potential bargaining chip in negotiations with China.  While policy uncertainty will persist, we expect the trade truce to continue being extended and incremental progress to continue, with the two sides clearly in de-escalation mode.