Global stocks weather third-quarter AI, bond and crude maelstrom

Despite global borrowing costs surging, currency interventions, wars, oil prices surpassing $100 per barrel and fears that artificial intelligence could spell humanity's doom, the world's most widely tracked equity indexes have only dipped 2% from their all-time highs and climbed over 12% for the year. This performance comes after a $3 trillion increase during a turbulent third quarter.

The biggest concern has been the rise of G10 government bonds, typically viewed as a stabilizing force in global investment portfolios, especially in September. In the U.S. Treasury market, the 10-year yield has surged past 5%, its highest since just before the 2007 financial crisis. This surge has caused the biggest hit to investors' returns in years, as bond prices inversely correlate with yields.

Experts warn this marks the beginning of a new upward trend rather than a temporary spike. Some markets, like South Korea's KOSPI, have suffered, with chipmakers' stocks dropping almost 20%, marking their worst quarter since the COVID-19 pandemic. However, other markets, including Bitcoin and oil, have surged, showing that not all sectors are suffering.

Despite the bond market's turbulence, large, developing economies seem to be holding their own. The year ahead promises more volatility, with ongoing conflicts in the Middle East and Ukraine, rising interest rates, and key elections in Brazil and the United States. Investors are most concerned about how high bond yields might go and whether the AI-driven equity rally can sustain.