Federated Hermes: Weekly Markets Wrap Up 6 August 2026
In this week's markets wrap, our investment experts examine what's driving moves across markets, from AI investment and infrastructure demand, to rising Treasury yields.
Jordan Stuart, Investment Director at Federated Hermes
AI Demand Continues to Outpace Supply
In 1999 and 2000, companies built the infrastructure first and waited for demand to show up. Today the opposite is true: demand is already here, at a scale the tech industry has never had to serve, and supply is scrambling to keep pace.
The major AI providers already have billions of active users. That's precisely why the infrastructure build-out looks so large.
Hyperscalers are racing to bring data centre capacity online fast enough to serve the demand that already exists today - before accounting for where usage is headed in the years ahead. Capital expenditures from the largest AI firms are expected to top $750bn this year alone, yet demand keeps moving faster than construction schedules allow.
Memory chipmakers sit at the centre of the AI infrastructure boom, and their earnings have followed: profits have risen several hundred percent year on year in some cases. Yet many of these stocks trade at single-digit forward price-to-earnings multiples. These aren't story stocks running on narrative. They have revenue, margins, and profits growing at least as fast as their share prices - the opposite of what a bubble looks like.
None of this means the AI build-out is risk-free. Capital cycles like this one tend to overshoot in places - some data centre capacity will likely get built ahead of eventual need.
But the core argument for a bubble rests on a pattern that simply isn't present this time: infrastructure-built years ahead of a demand base that doesn't yet exist. What we see instead is demand that's already arrived - over a billion users and growing - with supply struggling to catch up to it, backed by companies posting real profits at valuations that are, in places, historically cheap.
R.J. Gallo, CIO for Global Fixed Income at Federated Hermes
Treasury Yields Rise Under New Fed Leadership
Since Fed Chair Kevin Warsh took office, the weighted average yield of the US Treasury index has risen 14 basis points. Already on record about his plan to reduce the Fed’s forward guidance, Warsh’s July press conference suggests he is also reluctant to elaborate on current policy action as well.
The contradictions between Chair Warsh’s oft-repeated pledges to address elevated inflation and his failure to explain the conditions that would prompt policy tightening are sowing doubt about his inflation-fighting resolve. Making matters worse, his suggestion that market players set interest rates, while the Fed occupies the role of referee rather than the key player with sole control of the monetary base and target interest rates, fueled confusion about how Warsh intends to direct monetary policy.
Meanwhile, the US economy continues to expand - driven by strong consumer spending and business investment - and inflation remains elevated amid the oil-price volatility from the conflict in the Persian Gulf. This swirling combination has contributed to higher US Treasury yields in recent weeks.
Financial and international conditions have also contributed to rising US yields. Strong corporate earnings have kept equity markets near record highs, boosting wealth effects for high income households. Meanwhile, heavy current and future debt issuance to finance the AI build-out amid persistently large US federal borrowing needs suggests equilibrium interest rates must remain elevated to attract capital.