BayTrust Financial, Author at BayTrust Financial

Oct 26

Mitch Zacks – Weekly Market Commentary: How Your Portfolio Should Respond to Rising AI Borrowing Costs

By BayTrust Financial Weekly Market Commentary

It was a rough start to the fourth quarter for Technology stocks. In the week ending October 16, the Nasdaq Composite fell approximately 4.5%, as investors started to scrutinize borrowing costs associated with the AI infrastructure buildout.

In this week’s column, I’m going to reference specific companies to illustrate where some of the financing pressure was coming from. But please note, references to individual companies are for illustrative purposes only and are not recommendations to buy, sell, or hold any security.

The biggest company driving investor concern was CoreWeave, which provides cloud computing capacity for AI. The company had issued unsecured bonds in June with a 9.625% annual coupon, but by the end of last week, reports put yields on some of its bonds at roughly 15%–16%. Credit investors were demanding substantially greater compensation to own its debt.¹

The distinction between the coupon and market yield is important. Falling bond prices do not automatically increase interest payments on existing fixed-rate debt. They do, however, indicate the returns investors may require for future borrowing or refinancing.

CoreWeave’s quarterly results make this financing challenge tangible. Second-quarter revenue more than doubled to $2.58 billion, but the company reported $640 million in net interest expense and a $626 million net loss. Rising demand for CoreWeave’s services is coexisting with rising financing expense, which leaves less room for delays or disappointing returns.²

Over last weekend, Reuters reported that Anthropic was offering a yield exceeding 10% on a proposed $9 billion financing involving Blackstone funds, backed by five years of chip-lease payments. Anthropic is being held out as one of the most promising frontier labs, but 10% yields on $9 billion represents a substantial financing cost to carry as the investment generates returns.²

I think these financing risks warrant caution, particularly when a portfolio depends heavily on companies borrowing to fund rapid expansion. And even though it may seem like Technology is the only game in town, I think investors have a much wider range of businesses to consider—with different capital requirements and sources of profit. The latest earnings estimates give us a useful picture of those opportunities.

According to our colleagues at Zacks Investment Research, third-quarter S&P 500 earnings are expected to increase 24.6% year-over-year on 11.7% higher revenues. Removing Technology reduces expected earnings growth to 14.4%, but double-digit growth across the rest of the index is still an encouraging starting point.

The breadth is encouraging: 14 of the 16 Zacks sectors are expected to report positive earnings growth. And looking ahead, upward fourth-quarter revisions extend into Aerospace, Construction, Industrials, Finance, and Transportation. That gives investors evidence of improving profit expectations outside the companies at the center of the AI financing debate.

These are forecasts that incoming results will test, which we’ll of course be watching closely.

Valuations also differ substantially across the market. At the start of October, the equal-weight S&P 500 traded at approximately 15x expected earnings over the next 12 months, compared with about 19x for the traditional S&P 500 Index. That gap suggests investors can find stocks trading at more attractive valuations outside the market’s largest companies.

That leaves opportunities to evaluate growing businesses at more modest valuations. A lower multiple still requires scrutiny, but investors have a much wider set of choices than the handful of companies attracting the most headlines, in my view.

Going forward, the financing concerns deserve continued attention. A sustained reduction in AI investment could affect equipment suppliers and lenders beyond the borrowers themselves. I would become more concerned if those pressures began producing widespread earnings downgrades or making credit harder to obtain across unrelated industries. For now, the Zacks earnings outlook supports a broader search for opportunities. Investors can assess cash generation and valuations across sectors while keeping exposure to any single financing cycle (in this case, AI) in proportion.

Bottom Line for Investors

The recent selloff is a useful opportunity to examine how much of a portfolio depends on the same outcome. Several holdings can carry different company names while relying on the same capital-spending cycle.

In my view, diversification means giving a portfolio multiple ways to make progress. There is room to participate in AI, while also owning businesses with different customers, financing needs, and sources of profit. That flexibility becomes particularly valuable when one of the market’s most prominent growth themes faces a more demanding financial test, as we may be seeing now.

¹Reuters. October 16, 2026. “Private credit roundup: CoreWeave’s debt stress tests private credit’s AI financing boom.”

²Zacks Investment Research. October 16, 2026. “Q3 Earnings Season Preview: Revenue Beats Lag, Multi-Sector Momentum Holds.”

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

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Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

The Nasdaq Composite Index measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market. To be eligible for inclusion in the Index, the security’s U.S. listing must be exclusively on The Nasdaq Stock Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing). The security types eligible for the Index include common stocks, ordinary shares, ADRs, shares of beneficial interest or limited partnership interests and tracking stocks. Security types not included in the Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities. An investor cannot invest directly in an index.

The PHLX Semiconductor Sector Index is designed to track the performance of a set of companies engaged in the design, distribution, manufacture, and sale of semiconductors. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Oct 21

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Mitch Zacks – Weekly Market Commentary: How Investors Should View Narrowing Market Breadth

By BayTrust Financial Weekly Market Commentary

In the past six weeks or so, we’ve seen a sharp narrowing of market breadth in the U.S., which means fewer individual stocks are participating in the market’s gains—even as major indexes continue trading near record highs. September was particularly narrow. Technology gained approximately 5.5%, while nine S&P 500 sectors finished the month in negative territory.

As breadth has narrowed, familiar fears have returned.

Some readers may recall 2024, when the “Magnificent Seven” were dominating returns and many worried the market was over-concentrated in a handful of tech behemoths. Today, fewer than half of S&P 500 stocks are trading above their 200-day moving averages, and more than 200 companies in the index have posted negative returns in 2026. As I write, the median stock is up only about 4%, compared with a roughly 14% gain for the overall S&P 500.¹

But the reckoning for over-concentration never really arrived in 2024, and I don’t think investors should read too much into the narrowing trend we’ve seen in recent weeks.

For one, the equal-weight S&P 500, which gives each company the same influence regardless of its market capitalization, has generated a total return of approximately 12.5% this year. That trails the return for the market-cap-weighted S&P 500 by a couple of percentage points, but it’s still a substantial gain. In my view, this speaks to the ability to diversify away some of the over-concentration risk.

There is also the fact that while price breadth has narrowed in the equity market over the past several weeks, earnings breadth is strong and broadening.

According to our colleagues at Zacks Investment Research, S&P 500 earnings are expected to grow 24.3% year-over-year in the third quarter, on 11.5% higher revenues. Removing the Technology sector reduces expected Q3 earnings growth from 24.3% to 14.2%, which is a meaningful step down but still points to quite strong overall earnings growth—particularly considering the higher borrowing costs and energy prices I’ve written about recently.²

All told, Zacks currently expects 15 of its 16 sectors to report positive year-over-year earnings growth in Q3, with six sectors projected to generate double-digit increases. Outside Technology, for instance, Industrial Products earnings are expected to rise 13.3%, Transportation 10.9%, and Basic Materials 29.7%.

The earnings outlook also continues to improve, which is noteworthy because analysts typically lower their estimates as a quarter progresses. Indeed, over the past decade, S&P 500 earnings estimates have declined by an average of 2.1% during the first two months of a quarter. But recently we’ve seen the opposite, with upward revisions continuing into Q4. According to Zacks Investment Research, positive Q4 revisions are showing up in seven sectors, including Aerospace, Construction, Industrials, Finance, and Transportation.

Remember that stock prices reflect expectations for the future, and investors can become more or less enthusiastic about particular companies and sectors very quickly. For instance, we saw capital rotate into small-caps earlier this year, followed by a renewed preference for mega-cap Technology as investors reassessed interest rates, energy costs, and AI opportunities.

But earnings trends tend to evolve more gradually, and at least for now, they continue to show that companies outside the market’s largest Technology names are growing profits. This again argues for a broadly diversified approach.

Q3 earnings season is getting underway this week, meaning we’ll soon have a much clearer picture of whether analysts’ expectations are being met. I’ll be paying particular attention to results and management commentary outside Technology, where the gap between stock-price performance and expected earnings growth is especially interesting.

Bottom Line for Investors

Narrow market leadership is worth watching, particularly when some of the largest companies account for an outsized share of index returns. But I think investors should distinguish between weakness in stock prices and weakness in corporate fundamentals. The two can move in different directions for extended periods, as we’ve seen throughout this year.

For now, the earnings outlook gives me reason to remain constructive. Even excluding Technology, our analysts are projecting double-digit earnings growth across other sectors in the S&P 500. That suggests a broader foundation of corporate profitability than recent price action might imply.

¹Reuters. October 12, 2026. “Wall Street’s Big But Narrow Rally: 4 in 10 S&P Stocks Are Down this Year.”
² Zacks Investment Research. October 9, 2026. “Estimates Keep Rising as Q3 Earnings Season Takes Center Stage.”

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Oct 13

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Mitch Zacks – Weekly Market Commentary: Can Stocks Handle 5% Long-Term Yields?

By BayTrust Financial Weekly Market Commentary

As I write, the 10-year U.S. Treasury bond yield is hovering around 5.25%, which marks quite a move from the roughly 4.20% level where it started 2026. Some prognosticators warned that if the 10-year moved above the 4.5% or 5% threshold, it would surely cause some consternation in equity markets. And yet here we are, with major U.S. stock indices reaching all-time highs.¹

So how is it that bond yields could make such a big move while the equity market remains largely unfazed?

In my view, a large part of the answer is that the economy is growing at a faster rate than many appreciate, and also that companies’ earning power has been rising alongside their borrowing costs. The Bureau of Economic Analysis reported that real GDP grew at a 2.2% annualized pace in the second quarter. In nominal terms, before adjusting for inflation, the economy grew at an 8.5% annualized rate. That’s big growth in dollar terms.

Most GDP headlines focus on the real, inflation-adjusted growth figure. But businesses collect revenues and pay interest in nominal dollars. When sales grow through a combination of higher volumes and prices, companies have an opportunity to increase the cash flows available to cover financing costs and reward shareholders. BEA reported a $384 billion increase in the annualized level of corporate profits from current production, which the market takes as a sign of very solid activity.

Inflation complicates that picture, of course, because higher prices also raise operating costs and stretch household budgets. For equity investors, the key is how much of that additional revenue ultimately translates into profit.

There is also a timing issue. While Treasury yields can change daily, the interest expense on existing fixed-rate debt changes as that debt is refinanced. Businesses that previously secured longer-term financing have more time to adjust than borrowers facing an immediate rate reset.

Households and smaller businesses can feel the impact much faster. The average 30-year mortgage rate recently reached 7.28%, up from 6.34% a year earlier. On a $400,000 mortgage, that difference adds roughly $250 to the monthly principal-and-interest payment. For a small business, one additional percentage point of interest on a $1 million loan adds $10,000 in annual expense. Those higher costs can influence decisions about buying a home, purchasing equipment, or expanding a business.

For equity investors, the forward-looking question is what happens as more of the economy gradually refinances at today’s higher rates. For businesses, higher borrowing costs raise the return companies need to generate for new investments to make sense. What’s more, Treasurys yielding more than 5% give investors a more attractive low-risk alternative, which means stocks have to offer enough earnings growth and return potential to justify taking on more risk. Yields of 5% may not be a death knell for stocks, but they do raise the hurdle companies need to clear to keep attracting capital.

This all said, stocks have been here before and have done just fine.

From 1967 through 2001, the 10-year Treasury yield averaged at least 5% every single year. Over that same 35-year stretch, the S&P 500, including dividends, delivered an annualized return of over 11%, even with several bear markets and recessions along the way. So while today’s yields may feel high relative to the post-2008 era, history shows that equities can still generate strong long-term returns in a much higher-rate environment.

10-year U.S. Treasury Bond Yield (1962 – present)

Source: Federal Reserve Bank of St. Louis2

Bottom Line for Investors

In my view, the real test will come if elevated rates persist long enough to coincide with slower sales and weaker earnings growth. That combination would make today’s valuations more difficult to justify.

For now, the earnings backdrop gives me reason to remain constructive on equities. Higher yields raise the bar, but strong profit growth can still clear it. In my view, the bigger risk would be a combination of persistently high rates and weakening earnings—not the 5% yield threshold by itself.

¹Wall Street Journal. October 5, 2026. “Nasdaq Hits New Record as Bond Yields March Higher.”

²FRED, Fred Economic Data. October 6, 2026. “Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis (DGS10).”

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Oct 05

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Mitch Zacks – Weekly Market Commentary: Are Record Diesel Prices Putting the Economy at Risk?

By BayTrust Financial Weekly Market Commentary

With so much attention focused on crude oil and gasoline prices, the financial media—and by extension, many investors—may be overlooking another energy cost with even broader economic reach: diesel prices.¹

We don’t hear much about diesel prices when we talk about markets, inflation, and the economy, mostly because U.S. households rarely buy it directly. But we all still depend on diesel throughout the day, across many touchpoints. Diesel powers trucks delivering groceries, trains carrying freight, and much of the equipment used in farming and construction. According to preliminary Energy Information Administration data, the U.S. transportation sector consumed about 123 million gallons of petroleum diesel daily in 2025, representing roughly 22% of its energy use.²

It follows that the cost of diesel reaches businesses and households well beyond the filling station. That means when the national average for diesel reaches a record $6.53 per gallon, as it did on September 22, we should all pay some attention.

U.S. Diesel Sales Price

Source: Federal Reserve Bank of St. Louis3

Consider a farmer encountering higher fuel costs while harvesting crops, followed by a higher freight bill to get those crops to market. Or a retailer facing additional delivery expenses across thousands of shipments, and what that means for margins. All told, if higher costs persist, businesses face difficult choices about pricing, profit margins, and how much activity they can sustain.

So far, the inflation data offer some reassurance. The Consumer Price Index excluding energy slowed from 2.9% year-over-year in May to 2.5% in August. This measure still includes food, making it particularly relevant to concerns about agricultural and transportation costs. By comparison, conventional core CPI, which excludes both food and energy, rose 2.4% in August. I want to be fair in disclosing that August’s inflation report predates the latest diesel-price surge, so in my view, September data will really tell us if pressures are legitimately mounting. Keep an eye on that report.

There is also evidence that the economy is absorbing higher costs reasonably well. Producer prices were up 5.4% year-over-year in August, compared with a 3.4% increase in consumer prices. That gap suggests many businesses are absorbing at least some of the increase through margins rather than passing every additional dollar of cost directly to customers.

History also offers some perspective. Diesel prices reached similarly elevated levels in 2022 without tipping the economy into recession, and today’s prices remain below earlier peaks after adjusting for inflation. I would not take that history as a guarantee that today’s increase is harmless, but it does argue against treating $6-plus diesel as an automatic economic breaking point.

There has been some discussion in Washington about restricting U.S. diesel exports as a way to keep more supply at home. I understand the appeal, but the economics don’t really add up, in my view. The U.S. currently produces more diesel than it consumes, and refiners rely on overseas markets for that excess production. If exports were sharply restricted, refiners could eventually respond by processing less crude. If refiners respond by reducing refinery runs, that could also tighten gasoline and jet fuel supplies, since those products are made alongside diesel. That falls in the category of “unintended consequences.”

Policymakers may not need to take such drastic action. As I write, it’s been reported that oil exports from the Persian Gulf increased substantially in September, with an estimated 10 million barrels per day moved through the Strait of Hormuz (up from 5.9 million in August). Another 6 million barrels per day left the region through pipelines and ports that bypass the strait.

Combined, that puts exports at roughly 16 million barrels per day, compared with around 19 million before the war—about 85% of the prewar level. More crude reaching global markets gives refiners more supply to work with and could gradually relieve some of the pressure that has pushed diesel prices higher.

Bottom Line for Investors

What I would watch from here is persistence. If diesel stays near record levels for months and we begin seeing higher transportation costs show up in broader inflation, weaker margins, or softer economic activity, my concern would go up.

At the same time, September’s improvement in Gulf oil flows is a reminder that supply conditions can change quickly. In my view, the key is to avoid getting too far ahead of the data. Diesel prices are a legitimate pressure point, but the improving supply picture gives us reason to see how the next few months unfold before assuming a broader economic impact.

¹U.S. Energy Information Administration. 2026. “Diesel Fuel Explained.”

² New York Times. September 29, 2026. “Oil Exports Strait of Hormuz.”

³FRED, Fred Economic Data. September 29, 2026. “US Diesel Sales Price (GASDESW).”

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Sep 29

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Mitch Zacks – Weekly Market Commentary: Why This Rate Hike Probably Won’t Be the Last

By BayTrust Financial Weekly Market Commentary

When Federal Reserve Chairman Kevin Warsh was appointed, much of the market concern centered around whether he would push too hard for monetary easing—at a time when inflation was above target and the economy was growing steadily.

What a difference a few months of hot inflation can make.

August CPI showed prices rising 0.4% month-over-month and 3.4% year-over-year, and the Fed’s own September projections now put 2026 PCE inflation at 3.7% and core PCE inflation at 3.4%, both well above its 2% target.¹

CPI (blue line) and the PCE Price Index (Green Line) Have Been Pressured Higher in 2026

Source: Federal Reserve Bank of St. Louis2

I want to be fair in making the point that the numbers do not suggest inflation is spiraling out of control, especially given the outsized impact of higher energy prices. But we’re certainly seeing an end to the downward trajectory that started in the summer of 2022, with recent price pressures being enough to motivate all 12 of the Fed’s voting members to push rates higher.

History tells us we should expect more hikes from here.

Federal Reserve rate changes tend to be serially correlated, meaning policy moves often come in sequences rather than isolated steps. Looking at actual changes in the federal funds target since 2003, there have been 60 rate changes. On the 59 occasions when one change was eventually followed by another, 52 of them—or roughly 88%—moved in the same direction as the prior change.³ In other words, a hike is almost always followed by another hike, with the same going for cuts.

The individual cycles make the pattern easier to see. The Fed raised rates 17 consecutive times from 2004 through 2006. It then delivered 11 hikes across 2022 and 2023. More recently, the Fed cut rates six consecutive times across 2024 and 2025 before reversing direction last week. This serial correlation is sometimes referred to as “interest-rate smoothing,” with central banks generally preferring to adjust policy incrementally as they receive new information about inflation and growth—rather than making one large move and immediately reversing course.

The Fed’s own projections point in the same direction today. Following this week’s increase, the median policymaker projection puts the federal funds rate at 4.1% at year-end, compared with the current midpoint of 3.875%. 16 of 18 policymakers expect at least one additional increase before year-end.

For investors, the big picture shows us a world where financial conditions are gradually being tightened. The European Central Bank and Bank of Japan have recently raised rates, while the Bank of England has adopted a more hawkish posture as energy prices and inflation remain elevated. It looks to me like a renewed global tightening cycle, which I think could have implications for equity market volatility (as I wrote about recently).

It’s a trend worth watching closely, though I expect this tightening cycle to be far less aggressive than what investors experienced in 2022 and 2023. In other words, not enough to derail the bull market. The larger questions remain whether inflation continues to moderate, whether economic and earnings growth hold up, and whether tighter policy eventually begins to materially weaken demand. When I zoom out and take it all into consideration, I don’t think two or three quarter-point hikes are meaningful enough to materially change the earnings or economic backdrop on their own.

Bottom Line for Investors

This week’s quarter-point rate hike was widely expected, and I do not think investors should overhaul portfolios because the federal funds rate moved 25 basis points higher. The more interesting signal is the direction of policy. Fed rate changes have historically tended to come in sequences, the central bank’s own projections point to additional tightening, and other major central banks are confronting many of the same inflation pressures. It’s something to watch, but probably not enough to fundamentally alter the investment landscape, in my view.

The final takeaway that I think deserves attention is the idea that pressure could/would compromise Federal Reserve independence. In my view, the rate hike decision provides a useful piece of evidence in the other direction. With midterm elections approaching and the administration openly favoring lower borrowing costs, the Fed still voted unanimously to raise rates in response to inflation. That looks like a central bank responding to economic data, not political pressure. This point becomes even more salient if the Fed decides to raise rates again from here, which I believe will be the case.

¹Federal Reserve. September 16, 2026. Board of Governors of the Federal Reserve System.

²FRED Fred Economic Data. September 11, 2026. Consumer Price Index for All Urban Consumers: All Items in U.S. City Average

³Federal Reserve. September 16, 2026. Board of Governors of the Federal Reserve System.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Sep 21

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Mitch Zacks – Weekly Market Commentary: More Market Volatility May Be Coming—and That’s OK

By BayTrust Financial Weekly Market Commentary

After a strong second quarter when stocks rebounded sharply from war- and energy-driven volatility, equity and fixed income markets have settled into a more unsettled holding pattern. Selling pressure has appeared in spurts, and the day-to-day trading environment has become noticeably less comfortable.¹

The Volatility Index (VIX) has ticked higher over the past several weeks, as investors seem to be pricing in more uncertainty than they were earlier this summer.²

CBOE Volatility Index: VIX

Source: Federal Reserve Bank of St. Louis3

The rising volatility and selling pressure haven’t emerged out of thin air.

Oil is one obvious source of concern. U.S. crude prices have risen about 20% over the past three weeks to over $100 per barrel, while diesel has climbed to a record $6.23 per gallon and gasoline has rebounded to $4.32 (as I write). At the same time, commercial fuel inventories have been drawing down, and disruptions to Saudi Arabia’s East-West pipeline have reportedly removed another 2.5 million barrels per day of supply from an already tight global market.

We know that some of the buffers that helped absorb the initial energy shock earlier this year have diminished. But even still, $100 oil itself has never been an especially useful market threshold. Between 2008 and the start of 2026, Brent closed above $100 per barrel in over 200 weeks, and equity markets rose in forward 12-month periods over 80% of the time. In other words, the bull market and the economy withstood higher oil much of the time.

In my view, the more important risk today is persistence—whether elevated energy costs last long enough to weaken consumer spending, business activity, and corporate earnings. This risk remains on our radar, but we’re not seeing signs of it yet.

Interest rates are another source of pressure. The 10-year Treasury yield briefly touched 5% this week, after starting the year near 4.15%. That’s a substantial jump, and higher yields can of course increase borrowing costs throughout the economy and place pressure on stock valuations, particularly when rates move quickly.

But here too, the market has shown an ability to absorb the move. The S&P 500 remains up more than 10% this year despite the steady rise in yields. Strong earnings and economic growth can provide support as rates move higher, and we’ve been fortunate to see record-level earnings from Corporate America. Estimates for future quarters keep moving higher as well, which is the reason I think the 10-year at 5% didn’t trigger a major equity market move.

Finally, investors are once again adjusting expectations for Federal Reserve policy. Going into Wednesday’s policy meeting, markets were assigning a roughly 85% probability to a September rate hike, following August’s CPI print of 3.4%. With the Fed raising rates a quarter point, the market got what it expected, but the choppiness leading up to the decision may have been about resetting expectations. As I’ve written many times before, a quarter-point move by itself is unlikely to determine the market’s long-term direction, but rapid changes in Fed expectations can produce meaningful short-term swings.

Taken together, there is plenty here to give markets a reason to remain choppy, which is why I implied in the title that more volatility may be coming.

But here’s why that’s ok.

When markets rise steadily for months, normal volatility starts to feel abnormal. A 2% down day feels ominous. A 5% pullback over a few weeks can attract warnings about what could come next, and a 10% correction can suddenly feel like evidence that the entire investment thesis has changed.

But investors need to remember that volatility serves an important purpose in markets. Prices constantly adjust as investors digest new information, reassess risks, and change their expectations about future earnings. Corrections can temper excessive optimism, reset valuations, and force investors to become more discerning about what they own. In that sense, the occasional pullback is a sign that markets are functioning normally.

Bottom Line for Investors

A meaningful correction at some point would hardly surprise me—and by itself, it would not change my long-term view. Volatility is part of how markets reset expectations, reprice risk, and ultimately create healthier conditions for future gains.

For investors, the more important question is whether anything fundamental has changed in your financial goals, time horizon, or long-term investment thesis. If the answer is no, a period of market turbulence is usually a reason to stay disciplined—not a reason to abandon the plan.

¹Wall Street Journal. September 14, 2026. “Oil Executives Say the Great Fuel Crisis Is Here.”

²Morningstar. September 14, 2026. “Why the Odds of a US Fed Interest Rate Hike Just Shot Higher.”

³FRED Fred Economic Data. September 17, 2026. “CBOE Volatility Index: VIX (VIXCLS)”

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Sep 14

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Mitch Zacks – Weekly Market Commentary: On the Growing Concern Over U.S. Debt

By BayTrust Financial Weekly Market Commentary

Readers probably caught the headline last week: the U.S. national debt officially crossed the $40 trillion mark. If it feels like you’ve lost track of how big the number has gotten, you’re not alone.

The fact that total federal debt crossed $40 trillion is symbolically important. And it’s true the federal government continues running large deficits during an economic expansion, which has arguably contributed to rising long-term Treasury yields. These are all issues to keep on our radar.

But I also think investors should be careful about focusing only on the $40 trillion headline number and framing it in their minds as a debt problem where the danger to markets and the economy is imminent. Large numbers can create alarm, but they do not always tell us whether a debt burden is becoming immediately unmanageable.

In my view, the better way to analyze federal debt is to focus on debt-service capacity. In plain English, this means asking how much of the government’s revenue is needed just to pay interest on the debt.

This metric matters because interest expense competes with other priorities. Every dollar used for interest is a dollar that cannot be used as easily for defense, infrastructure, healthcare, entitlement programs, tax relief, or future investment. As it stands today, the issue is not whether the U.S. can make its next interest payment—it’s whether rising interest costs gradually reduce the government’s ability to stimulate the economy in other ways.

Interest costs as a share of federal tax receipts have risen meaningfully in recent years, which is a real concern. But they remain below the peaks reached in the 1980s and early 1990s, when interest rates and fiscal concerns were also elevated. Federal tax receipts also still exceed interest payments by a wide margin (chart below), which is one reason markets are not treating U.S. debt as a near-term solvency issue.

Federal tax receipts (blue line) vs. Federal interest payments (green line)

Source: Federal Reserve Bank of St. Louis1

I think it’s fair to say, however, that the margin for error is narrowing. Put simply, the U.S. should not run large deficits indefinitely and assume the bond market will absorb every new dollar of debt at whatever yield policymakers prefer. The bond market has recently been reminding investors of this latter point.

If the $40 trillion milestone matters, this is why. It is not about imminent crisis—it’s about higher debt and higher rates leaving less room for error, and making sustained economic growth increasingly important.

The U.S. has carried high debt burdens before, most notably after World War II. What helped reduce that burden over time was not simply austerity or aggressive debt repayment. It was growth, productivity, inflation, and time. A growing economy makes a large debt burden easier to manage, while a slowing economy makes it harder.

For now, the U.S. continues to see economic growth, resilient corporate earnings, and strong demand for Treasury securities. Those conditions do not erase the debt problem, but they do help explain why markets are not treating $40 trillion as a breaking point.

The risk is that this balance becomes harder to maintain over time. If interest costs keep rising faster than tax receipts, policymakers may face tougher trade-offs around spending, taxes, and future investment. That is the part of the story investors should watch most closely. Not necessarily the headline debt number by itself, but whether the economy remains strong enough to carry the burden.

Bottom Line for Investors

The U.S. crossing $40 trillion in debt is a serious milestone, and investors are right to pay attention. But the better focal point, in my view, is whether the U.S. can continue servicing its debt while maintaining enough flexibility to support growth and respond to future challenges.

For now, the evidence still points to a long-term sustainability issue, not a near-term solvency crisis.

¹ FRED, Federal Reserve Bank of St. Louis. Federal Government Current Tax Receipts and Federal Government Current Expenditures: Interest Payments.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Sep 08

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Mitch Zacks – Weekly Market Commentary: Why Equity Investors Are Actively Rotating Capital

By BayTrust Financial Weekly Market Commentary

A diversified portfolio of U.S. stocks has performed well over the past few years, but the ability to generate strong alpha has largely relied on being overweight by a few key names (most of which are in the “Magnificent Seven”).¹

But this has not been the case in 2026.

As I write, the S&P 500 Equal Weight Index is outperforming the market-cap weighted S&P 500 Index by approximately 200 basis points year-to-date, which sends a clear signal that investors have been rotating capital away from the hottest trade.

We know this because the traditional S&P 500 is market-cap weighted, which means the largest companies (mega-cap tech stocks) have the greatest influence on performance. The equal-weight version gives every company the same weight. When the equal-weight index outperforms, it suggests the average stock is doing better than the headline index may indicate.

Put simply, many of “the other 493 stocks” in the index are quietly experiencing solid, sometimes bigger gains. This is a healthy development, and I think the reason comes down to three forces: earnings strength, fading uncertainty, and more selectivity within the AI trade.

Let’s start with earnings.

According to our colleagues at Zacks Investment Research, aggregate earnings for the S&P 500 grew +40.9% year-over-year on +14.5% higher revenues. Positive surprises were also widespread, with 83.8% beating EPS estimates and 76.9% topping revenue estimates.

To be fair, some of the headline earnings strength is still being driven by a few very large companies. But the earnings story does not disappear when those companies are removed. As seen on the nearby chart, if we exclude Technology sector earnings and a few key earnings drivers in Q2, we still get around 15% year-over-year earnings growth—a strong improvement from previous years.

Zacks2

The same point shows up within the Technology sector. Zacks data shows that Q2 earnings growth in the Tech sector remains heavily concentrated in Nvidia, Micron, and Alphabet. Stripping out those three companies reduces Q2 earnings growth for the rest of the Tech sector from +95.2% to +33.7%. Quite a revision, but still very strong overall.

The second force, I think, is driving the broadening is fading uncertainty. Market leadership often narrows when uncertainty is high, as investors tend to crowd into the companies and themes with the clearest earnings visibility, strongest balance sheets, or most durable growth. Over the last few years, that has clearly been mega-cap Technology and AI-linked stocks.

But in 2026, several major risks have become easier for markets to process. The war and oil price volatility are of course still front-and-center, but investors have had six months to gauge the impact on energy prices and corporate earnings. Similarly, tariff policy has returned to headlines, but the market has moved beyond the initial shock phase and is now assessing company-by-company exposure. The Fed’s outlook on interest rates may be the remaining wild card, but I think if we’re talking about 25 basis points in either direction, it’s not enough to factor as a negative surprise.

The final force is more selectivity within the AI trade. In July, AI-linked areas like semiconductors, memory, power, liquid cooling, and optical networking all came under pressure. When a trade becomes more volatile, investors often look for ways to reduce concentration and find opportunities elsewhere. And indeed, in August, the rebound became more differentiated, with investors rewarding some parts of the AI ecosystem more than others. That type of selectivity is healthier than simply buying the entire theme indiscriminately.

It has also meant investors are increasingly looking for earnings growth in sectors that were written off earlier in the year—which is how rotation often works. Companies and sectors that were overlooked earlier in the year are getting a second look as fundamentals improve and the macro backdrop becomes easier to assess. In my view, that is an important shift. A rally led by a handful of mega-cap stocks can work for a while, but a rally supported by more companies, more sectors, and more earnings drivers tends to be a healthier market environment.

Bottom Line for Investors

The U.S. stock market has not completely moved past the concentration issue. But the rally is becoming broader, as equal-weight outperformance, strong earnings growth outside a few headline names, and more participation across sectors all suggest the market has more support beneath the surface than many investors may realize.

For diversified investors, that is an encouraging signal. Diversification does not always feel valuable when leadership is narrow, but it becomes important when leadership changes—which is what we’ve seen in 2026 year-to-date.

¹Zacks. August 19, 2026. https://advisor.zacksim.com/e/376582/ergy-fuel-sp-500-growth-engine/5vtn75/1602110950/h/5YE_Y8p4MEGevotlIHe7ekn8jgFyHzIO9HRgP0zmzCM
² Zacks. August 19, 2026. https://advisor.zacksim.com/e/376582/ergy-fuel-sp-500-growth-engine/5vtn75/1602110950/h/5YE_Y8p4MEGevotlIHe7ekn8jgFyHzIO9HRgP0zmzCM

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Sep 01

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Mitch Zacks – Weekly Market Commentary: The Bond Market Is Sending a Message

By BayTrust Financial Weekly Market Commentary

Bond yields have moved higher in recent weeks, which has prompted a debate among market participants as to the potential cause: rising inflation expectations, market consternation at rising deficits in the U.S. and abroad, sinking global demand for Treasurys, or some combination of forces.¹

10- and 30-Year U.S. Treasury Bond Yields, Year-to-Date

Source: Federal Reserve Bank of St. Louis2

Then, a surprise announcement last week by Treasury Secretary Scott Bessent sent the debate into overdrive.

Secretary Bessent announced plans to expand long-dated U.S. Treasury bond buybacks, with the U.S. Department of the Treasury at least doubling the size of certain buyback operations from $2 billion to $4 billion. The buybacks would focus on the long end of the curve—meaning 10- and 30-year U.S. Treasurys—with the move framed as an effort to support market functioning and liquidity.

But there seemed to be one glaring problem—there was no noticeable issue with liquidity or the ‘plumbing’ of Treasury markets. Treasury auctions were still clearing, dealers were not visibly pulling back, and the market was not facing the kind of forced selling we saw in March 2020. Markets took the news skeptically, and yields ultimately ticked higher—not lower.

I won’t go too deep into the weeds here, but the signal taken from markets was that the Department of the Treasury was intervening in bond markets not because of liquidity issues, but because of pricing issues. In other words, the actual goal was to put a support under bond prices, which equates to an effort to push yields lower, arguably in support of keeping borrowing rates low and financial conditions accommodative.

This was the story that was playing out in headlines last week, but I think it all lacked important context. A $4 billion buyback operation sounds large in isolation, especially after headlines emphasized that Treasury was “doubling” the size of certain operations. But scale is important here, as Treasury cash securities trade around $1 trillion per day in a roughly $32.2 trillion Treasury market. In that context, a $2 billion buyback increase is unlikely to materially change the market’s supply-demand balance on its own.

Rising long-term rates are usually framed as a negative, because they can raise borrowing costs, push mortgage rates higher, and weigh on stock valuations. All these outcomes are real and possible, but rising yields can also serve as an important market signal. When investors demand more compensation to lend for 10, 20, or 30 years, they may be sending a message about inflation, Treasury supply, fiscal policy, or uncertainty. In this sense, markets can ‘demand’ a certain discipline to push policymakers into difficult choices.

There is also a constructive side of the yield story that often gets overlooked.

First, higher yields mean investors are being paid more to own bonds over time. This yield compensation can come with price volatility, but it does improve the overall income profile of high-quality fixed income for long-term investors.

Second, a steeper yield, where long duration bonds see more upward pressure than the short end of the curve, can improve the economics of bank lending. Banks generally fund themselves at shorter-term rates and lend at longer-term rates. When long-term rates rise relative to short-term rates, lending can become more profitable. In the current context, loans and leases in bank credit for all commercial banks were up 7.3% year-over-year as of mid-August, arguably aided in part by rising long duration yields.

Ultimately, higher yields are not automatically positive or negative, but they do carry important information. If yields are rising because growth remains resilient, the economy and corporate earnings may be able to absorb some of the pressure. If yields are rising because inflation expectations or fiscal concerns are worsening, investors should take that signal seriously. For now, I don’t think the recent moves have been sharp enough to suggest a bond market in crisis. But they have been meaningful enough to remind investors that long-term rates, federal borrowing needs, and inflation expectations all deserve close attention.

Bottom Line for Investors

Rising long-term yields deserve attention, but they do not automatically point to a bond market crisis. They are a signal—about inflation, growth, Treasury supply, deficits, and the return investors require to lend money for longer periods.

The right response is not to react emotionally to every move in rates. It is to listen to what the bond market is saying, while keeping the message in perspective.

¹ Wall Street Journal. August 21, 2026. https://advisor.zacksim.com/e/376582/mod-Searchresults-pos-5-page-1/5vsxd2/1594610707/h/tepFt_XVIUI0L2XHtmh5Z38sxYUoDnbS3usl92cRACE

²Fred Economic Data. August 26, 2026. https://advisor.zacksim.com/e/376582/series-DGS10/5vsxd5/1594610707/h/tepFt_XVIUI0L2XHtmh5Z38sxYUoDnbS3usl92cRACE

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

Aug 24

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Mitch Zacks – Weekly Market Commentary: The Next “AI Concentration” Story May Be in the Bond Market

By BayTrust Financial Weekly Market Commentary

For years, investors have been warned about mega-cap tech concentration in the stock market. Readers have seen the statistics before—the “Magnificent Seven” stocks account for 30+% of the S&P 500 index, corporate earnings results are being pulled higher by a few key hyper-scalers, etc.¹

But there is another concentration story developing in the capital markets that has received far less attention: the impact AI is having on credit markets.

In the early days of the AI investment frenzy, infrastructure was being funded primarily through free cash flow and equity markets. But as I take stock of the environment today, it’s clear that an increasing share of investment is coming from debt. Hyper-scalers and the broader AI ecosystem are issuing bonds to help finance data centers, chips, power infrastructure, cloud capacity, and other long-term investments tied to artificial intelligence.

The share of new investment-grade debt tied to AI has climbed quickly:

2024: roughly 1% of year-to-date supply
2025: roughly 7% of year-to-date supply
2026: roughly 18% of year-to-date supply

Hyper-scalers issued roughly $108 billion of debt globally in 2025. So far in 2026, that figure has reached about $194 billion. Across the broader AI ecosystem, total AI-related debt issuance is estimated at nearly $500 billion year-to-date, with hyper-scalers accounting for about 40% of that total. In my view, this is starting to look like the credit-market parallel to what many investors already understand about equities.

In other words, this is not just a handful of large technology companies borrowing money. It is part of a much broader credit cycle tied to the AI buildout.

I want to pause here to make it clear that I do not think there is a leverage problem in the markets today. Many of the largest issuers remain highly rated, cash-generative, and in strong financial condition. The technology sector broadly entered this cycle with strong balance sheets and relatively low leverage, which gives many companies room to borrow for strategic investment. In many cases, AI-related borrowing is being used to build productive assets that companies believe will support future growth.

The trillion-dollar question, however, is: will the payout on AI be as high as the optimistic forecasts say it will be? Uncertainty about the answer will eventually place limits on investor demand for new debt.

For now, at least, there is no obvious sign that broad investment-grade credit markets are under major stress. Credit spreads have moved somewhat, but they remain low relative to periods of real market strain. Borrowers still have access to capital, and investor demand remains present.

Looking ahead, though, a multi-year wave of issuance can change the shape of a market. It can influence spreads, duration exposure, issuer concentration, and the terms investors require to absorb new supply. It can also pull in new structures—private credit, infrastructure funds, real estate lenders, and others. When a hot investment theme attracts large pools of capital, the risk is that lenders begin stretching terms, accepting weaker protections, or underestimating how difficult it may be to exit if conditions change.

As more AI financing moves into leases, project finance, infrastructure lending, and private credit structures, investors may have a harder time judging how much risk is building and where it ultimately sits. I’ve written before about cracks showing up in private credit markets, so this will be a story to continue watching.

The same principle applies to fixed income more broadly. Bonds are often discussed as if they are one asset class, but there are major differences between Treasurys, municipal bonds, investment-grade corporates, high-yield bonds, private credit, and structured finance. Each has a different role in a portfolio, and each carries different risks.

For investors, the AI credit story is another reminder that diversification matters in fixed income too. A portfolio can benefit from exposure to high-quality corporate bonds, but that does not mean investors should ignore issuer concentration, duration, credit quality, or the purpose of the borrowing. Investment-grade corporates can add income, but they still require careful credit selection.

Bottom Line for Investors

The AI credit story I’m telling here is not a warning that the largest technology companies are suddenly overleveraged. Most still have strong earnings, solid balance sheets, and ample access to capital. The bigger issue for investors, in my view, is exposure. The same AI theme that has created concentration concerns in equity markets is now showing up in credit markets, through bond issuance, data-center financing, lease commitments, and private-market structures that may be harder for investors to fully see.

The takeaway is that fixed income should not be treated as a passive endeavor for yield. It requires active oversight, credit discipline, and diversification across Treasurys, municipals, and high-quality corporates.

¹Goldman Sachs. 2026.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.

Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.