WS #15962

The market is pivoting sharply on inflation expectations following a 1.3% surge in US PPI, which has revived fears of an aggressive Fed rate hike cycle. This macro shock is driving a broad rotation out of rate-sensitive growth and financials, evidenced by Charles Schwab falling 4.7% despite beating earnings and Morgan Stanley declining on its own strong results. The bond market is rallying in response, with municipal bonds surging as yields compress, signaling a flight to safety and a repricing of duration risk. Simultaneously, the AI infrastructure narrative is fracturing under the weight of credit stress. CoreWeave’s credit default swaps have hit distress levels with bond yields topping 15%, a direct contradiction to the bullish AI capex thesis. This is compounded by geopolitical supply chain risks, as Ukraine resumes strikes on Russian oil refineries and Europe’s gas prices near 2022 highs. While the IEA has agreed to accelerate refined product releases to dampen the energy spike, the combination of rate fears and AI credit distress is creating a hostile environment for high-multiple tech and energy-dependent sectors.