Markets bounced back on Wednesday, the Dow closed up around 300 points, recovering some of Monday's losses while oil and Treasury yields eased slightly after spiking on renewed Middle East tensions. But the ten year yield is still sitting near a two-year high. Joining me to break this down is Pedro Palandrani, Head of Product Research and Development at Global X — an asset management firm managing more than $130 billion for investors. Pedro, welcome to the show.
Thanks for having me, Johnny.
Brent crude is trading near $95 a barrel, a six-week high. How does this ongoing conflict create a defence and investment theme right now?
Oil prices are something the market is watching very closely — especially around inflation expectations in the short term and what that means from a monetary policy perspective. Fed Chairman Warsh just said there is still work to do on inflation. So monitoring oil prices is very important. I think an important point for investors over the long term is that oil risk premium is likely going to mean revert — we saw that a few weeks ago when tensions were easing. So that is probably going to create a forward-looking good environment for high-duration, high-growth asset classes. But something that is longer term in nature and investors are seeking to capitalise on is defence. Defence spending is likely going to hit $3 trillion in 2026 and will likely continue to increase next year as geopolitical tensions persist around the world. That is an area of opportunity for investors looking at the defence space right now.
The ten-year yield hit 4.88%. Higher for longer typically hits growth and thematic stocks the hardest. How much does this change your calculus on thematic exposure?
If we contextualise where we are with Treasury yields — yes, we are much higher than the last five years. But the period from the 2010s into the early 2020s was really the anomaly for rates. Before then, we saw higher levels of rates pretty much close to where we are right now. So I think we are in normal levels of rates right now. That means we are still seeing opportunities on the equity side. High growth, high duration asset classes still represent good opportunities. We are seeing a convergence of structural trends playing out in our economy — AI, geopolitical tension, policy support. On AI specifically, we have this data centre buildout. Hyperscalers are spending $700 billion this year just in CapEx. That is going to be the top line revenue for hardware-related data centre companies down the AI stack. That is where we see a lot of opportunities right now.
Dell was up more than 9% in the premarket on its AI server demand forecast. Is that a signal to stop chasing AI household names and look one layer down?
I do not think these two things are mutually exclusive. We still see a healthy opportunity with mega caps — they are expected to reach profit margins of 30% on a forward looking basis for the Magnificent Seven. That is still very attractive fundamentally. But the reality is that investors already own those companies if they own the S&P 500 or the Nasdaq 100. So yes, investors should be looking beyond those into the rest of the AI ecosystem. Dell is one good example — they reported $95 billion in AI server backlog, which is very healthy. But beyond Dell, keep looking down the AI stack — semiconductors, power, cooling, data centres. That is where investors are really interested right now.
Kevin Warsh spoke at Jackson Hole. How much does his tone now play into how investors approach growth-oriented funds?
It is very likely that in September, just in a couple of weeks, we will see a rate hike. Warsh was very firm in saying there is work to do on inflation. That probably means a little bit more volatility in the market. So I think investors need to be very targeted when it comes to their exposure and asset allocation — and continue to look at long-term investment opportunities rather than short-term cyclicality.
Awesome. Well, Pedro, thank you so much for your time.
Thanks, Johnny.
