For the DCF model, the battle between the numerator (cashflows) and denominator (cost of capital) has morphed into a battle between rate scares (higher rates force valuations lower) and growth scares (fears about the AI train slowing down and causing the earnings “bubble” to burst). The former produces a positive correlation between equity and bond returns, and the latter produces a negative correlation. Price discovery is always happening, and usually the climb up the stairs takes longer than the climb down. While earnings and margins continue to boom, the cap-weighted index has struggled to get out of its own way since early June as the AI space continues to correct. The market is now broadening nicely, with 59% of stocks above both their 50-day and 200-day moving average, but you wouldn’t know it from looking at a price chart of the SPX. For now, worries about the AI wave slowing down and becoming systemic to the economy have brought the 10-year yield back down to 5.0% and has reduced the prospect of a Fed rate hike this week. Rate worries have been replaced by credit worries (at least in high yield), so the cost of capital hasn’t really changed that much. A big question for asset allocators continues to be the value proposition of Treasuries. They are attractively priced yes, but will they provide negative correlation when we need it the most?