Stocks closed Friday with solid gains as Fed-hike bets waned following a softer-than-expected September jobs report. Despite that rebound, two out of three key indexes locked in weekly losses as the rout in longer-term Treasury bonds intensified, driving the 10-year and 30-year yields to multi-decade highs. The Dow Jones Industrial Average (DJIA) was down 1.26% on the week, while the S&P 500 (SPX) held up better, supported by tech stocks, with a loss of just 0.27%. The large-cap technology index Nasdaq-100 (NDX) gained 0.65% for the week, led by large gains in NVIDIA (NVDA), SpaceX (SPCX), and many AI infrastructure and cybersecurity stocks.

NVIDIA's stock closed near its all-time high, reaching a market cap of $5.65 trillion. Stock-market fun fact of the day: the capitalization of each of the four largest S&P 500 stocks – NVIDIA, Apple (AAPL), Alphabet (GOOGL), and Microsoft (MSFT) – by far exceeds the total market value of over 1,900 small-cap stocks making up the Russell 2000 index. Nine out of the ten S&P 500 outperformers that have notched the largest triple-digit gains year-to-date are those that supply silicon, memory, servers, storage, connectivity, or energy to the AI buildout.

The AI buildout is the reason the stock market continues to grind higher, even if the ascent is anything but linear – despite bond-market jitters, political and geopolitical uncertainty, elevated gas and diesel prices, and extremely low consumer sentiment. The latter is now lower than it was during the COVID-19 pandemic and the subsequent 9% inflation surge, as well as during the last 11 recessions and bear markets, including the 2008 Global Financial Crisis.

This points to a peculiar gap. On one side, there is an objectively sound economy (despite pockets of weakness here and there) and a stock market at or near all-time highs. On the other, there are gloomy sentiment survey results. The disconnect has caused many analysts to question whether these online surveys are at all relevant – especially given the overall healthy trend in personal spending and retail sales. The early Q3 reporters among consumer-focused firms, like Constellation Brands (STZ) and PepsiCo (PEP), could soon shed some light on the real state of the consumer.

Meanwhile, one of the main consumer-sentiment down factors – inflation – has improved, with August Core PCE remaining at 3% year-over-year, well below expectations. Recent trends were even more encouraging: the three-month annualized rate slowed to 2%, touching the Federal Reserve's target for the first time in more than two years. Since this improvement is obviously not the result of the recent Fed hike, markets now expect the policymakers to wait and see how their move plays out in the economy before deciding on their next steps.

The sharp drop in the market-perceived odds of a rate hike at the Fed's meeting this month was also driven by the recent job-market data. U.S. job growth slowed dramatically to 29,000 in September, while the estimates in the two prior reports were cut by a notable number, and unemployment ticked up to 4.2%. The data somewhat dented the narrative of a Teflon job market, but the setup appears much less alarming under the hood than the headline numbers suggest. The increase in unemployment was actually positive – at least in part – as the labor-force participation rate outpaced employment growth.

Against that backdrop, bonds clocked their worst quarter since 1994 and then continued downwards, with 10-year Treasury yields touching their highest in over 20 years. That is the result of a mix of positive and negative factors: higher energy costs feeding into sticky inflation, stronger-than-expected economy, a term premium due to fiscal concerns and policy uncertainty, and the heavy supply of new bonds. While the new Treasury issuance hasn't been extraordinary, Big Tech has flooded the market with debt necessary to finance the AI boom. The five hyperscalers – Alphabet, Microsoft, Amazon (AMZN), Meta (META), and Oracle (ORCL) – sold around $200 billion in USD-denominated debt through the end of August, while for the wider AI ecosystem the issuance has already surpassed $400 billion. A hefty chunk of that cash ends up in NVIDIA's coffers, as its GPUs and rack-scale systems remain the backbone of most AI data centers.

Anthropic's IPO filing shows the true cost of the AI race. The Claude maker plans to spend $518 billion on cloud, compute, and infrastructure obligations in the coming years, compared to just over $7 billion in 2025. The AI lab's prospectus reflects its ambitious bet: that AI will transform the global economy more profoundly than ​industrialization, electricity, and the Internet.

So, if the heavy stream of corporate paper is one of the culprits behind the bond-market quivers, we will probably have to learn to live with higher-for-longer yields. The Fourth Industrial Revolution appears to be more capex-hungry than all previous ones combined. According to PwC's Global Data Center Outlook, cumulative global spending on data centers alone could top $30 ​trillion by 2050, with the U.S. accounting for roughly half of that amount – and that is a conservative assessment that doesn't include many of the associated and adjacent costs. Tech companies are now responsible for 55% of all capital spending in nominal GDP, and even the strongest cash flows cannot cover these sums.

Despite constantly resurfacing worries, Corporate America and its investors are getting a lot of bang for their buck. In the earnings season that is about to begin, FactSet expects the S&P 500 to report earnings growth of nearly 30% year-over-year – its third consecutive quarter of earnings growth above 25% and the eighth straight quarter of double-digit earnings growth for the index. This rate of profit growth amid a solid economy is why the stock-market rally can remain undeterred by surging bond yields.