AI Capital Spending Keeps US Markets Firm Despite Geopolitical Risks

The U.S. stock market has stayed comparatively firm amid rising Treasury yields and global geopolitical strain, according to Jefferies equity strategist Chris Wood. The chief driver is a vigorous AI‑focused capital‑expenditure cycle, where technology firms are allocating massive budgets to AI hardware and software platforms.

Wood notes that the ten‑year Treasury yield has jumped to 5.34% and the thirty‑year to 5.69%, the highest since 2002, creating a valuation pressure point for equities. Nevertheless, strong corporate earnings—bolstered by AI‑related revenue—have helped offset that pressure.

He warns that if AI projects fail to meet return expectations, the current momentum could slow, impacting tech earnings and broader market confidence. Additionally, Wood flags a structural slowdown in G7 government bond markets, which could further tighten global financial conditions.

In the Indian context, the yield rise has contributed to an eight‑week streak of market declines, underscoring how international yield dynamics influence emerging markets.

Overall, while AI spending continues to underpin market stability, investors must watch for a possible shift in risk sentiment as bond yields stay elevated.