The US economy and the US stock market are starting to go their own ways. Despite solid economic data, including continued job gains and strong consumer spending, the Nasdaq and S&P 500 are down for the month.

Rising Real Rates Change the Game

Investors are at a crossroads as rising real, inflation-adjusted interest rates ripple through markets driven by the epic AI investment boom. The Federal Reserve’s hawkish turn has fueled a surge in bets that the central bank will raise interest rates.

The tension between a solid if uneven economy and a go-go market driven mostly by one sector has often been decided in favor of markets whose multiples seem perpetually to be near all-time highs. But that trend might not hold if the age of higher real borrowing costs is here.

Debt Surge Changes Sentiment

Many investors say a reassessment of the so-called hyperscalers building AI infrastructure began late last year when Oracle and other firms known for clean balance sheets began to take on more debt. Companies such as Amazon and Alphabet have issued $60 billion in bonds in multiple currencies in the last 12 months.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.