Things that go bump in the night

US equity markets can absorb higher rates, energy volatility and political risks because stronger nominal growth, resilient earnings and infrastructure investment support a bullish outlook for the S&P 500.

• The 10-year Treasury yield has risen above 5.2%, its highest level since 2007, from roughly 1.5% in 2021 and 0.55% in 2020, yet equities remain near an all-time high.
• The Atlanta Fed’s tracker points to nearly 7% nominal GDP growth in the third quarter, while AI infrastructure investment is increasing both earnings growth and investment-grade hyperscaler debt issuance.
• The article expects the recent 54-basis-point jump in the 10-year yield during September to prove unsustainable and forecasts one or two additional Fed hikes through the first quarter of 2027.
• Oil prices moved from the $60s to nearly $120 and back as the Iran conflict disrupted supply, but flows through the Strait of Hormuz have recovered to 80–90% of pre-war levels; inventories, resilient consumers and base effects provide some protection.
• The authors do not expect a dramatic slowdown in AI infrastructure spending, arguing that the Magnificent Seven can use AI investment to widen moats, gain market share and accelerate cash flow.

Takeaway: Federated Hermes maintains a bullish view and forecasts the S&P 500 at 10,000 by year-end 2027, while acknowledging that the pace of rate increases, energy disruptions and any meaningful AI slowdown remain the main risks.