Surging oil prices and bond yields have made markets choppy in recent weeks — but many investors are digging ing and hoping returns are in sight.

Global government bonds extended a sell-off after the U.S. 10-year Treasury

Equities have largely been on a tear this year despite a global energy crisis, surging bond yields and bouts of volatile trade amid geopolitical developments, with the S&P 500

As stocks faced more volatility this week after leading AI voices warned the tech was moving too fast to be safe and safeguards were needed, Bank of America’s latest Global Fund Manager Survey revealed on Tuesday that many market participants appear undeterred from pouring cash into the stock market.

The survey found that while the “excess bullishness” seen over the summer had faded, investors remained broadly optimistic about growth and earnings, with most expecting continued heavy spending on AI.

A net 49% of money managers remained overweight global equities in September, the survey said, which polled 170 investors overseeing a collective $470 billion in assets. That marked a slight pullback from the previous month, but stocks remained the most common overweight position of any asset class.

Expectations for double-digit earnings-per-share growth over the next 12 months were at their highest since August 2021, the survey found, and 38% of respondents said they expected a global economic “boom” in the coming year.

Allocation to bonds was at its lowest level since May 2022.

Why BlackRock is still bullish on stocks

In a note on Tuesday, strategists at the BlackRock Investment Institute (BII) said that rising bond yields hadn’t knocked them off of their pro-risk stance, though they are “raising the hurdle for returns.”

“Higher rates and strong equities need not be contradictory – what drives yields matters,” they said. “When higher yields reflect stronger investment and growth, the resulting earnings strength can help offset a higher cost of capital. That explains why we maintain our U.S. equity and AI overweights.”

“We think AI-related investment can support growth and profits even as the same investment boom absorbs capital, power and other scarce resources,” they added.

Toni Meadows, head of investment at BRI Wealth Management, told CNBC in an email on Tuesday that the “gold rush” mentality around AI meant there would be periods where investors “question which future they are investing for.”

“The pace of investment in AI data centres and related infrastructure is insatiable at present but there will be bottlenecks and the circular nature of some revenue streams within the sector ultimately opens ‘the AI trade’ up to some fragility,” he said.

“At present, I doubt the current questions being raised will derail the story, even if we now have a period of reflection and readjustment. We are likely to have a series of pauses in the AI trade – whether they develop into a deeper sell-off depends on how worried investors become about the returns to investment, the funding of spending and the circular nature of revenues in some areas.”

Tej Sthankiya, senior investment analyst for impact investing at Federated Hermes, told CNBC that the recent AI sell-off created buying opportunities for longer-term investors.

“It is difficult to predict how long this [volatility] will go on for as the market’s short term risk appetite is heavily influenced by the top-down macro (e.g. rates, oil, geopolitics), where trends have been less benign in recent days and weeks,” he said in an email.

“The AI data center build out has been capacity constrained by access to critical semiconductor wafers and power; there are no signs of these bottlenecks abating in the near term,” he said.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a Tuesday morning note that the key question for investors is not whether frontier development slows, but whether AI demand and monetization will continue to expand.

“We believe the answer is still yes,” he said. “We continue to favor a diversified approach across the AI value chain, combining infrastructure beneficiaries (including semiconductors, networking, power, and cloud) with larger platforms and software companies positioned to monetize adoption.”

“Stronger AI safeguards may reshape competition, but the proposals so far do not establish that the AI capex cycle is ending,” Haefele added.

Oil retreated Wednesday after a report said U.S. energy inventories rose last week, with investors assessing the latest developments in Middle East conflict and associated supply risks.

Futures for international benchmark Brent crude for November delivery dropped 1.02% to $107.64 a barrel. U.S. West Texas Intermediate futures for October declined 1.29% to $104.46 per barrel.

U.S. crude oil, gasoline and distillate inventories all rose last week, Reuters reported, citing sources for data from the American Petroleum Institute. Crude inventories rose by 7.1 million barrels in the week ended Sept. 11, compared with analysts’ expectations for a draw of about 1.6 million barrels, Reuters reported.

Meanwhile, traders remain glued to developments in the Middle East, amid concerns over supply disruptions following an attack by Iran on Saudi Arabia’s crucial East-West pipeline that led to its closure over the weekend.

U.S. Energy Secretary Chris Wright told CNBC in an interview on Tuesday that the closure was a brief interruption that will last days. Andy Lipow, president of Lipow Oil Associates, said in a note on Monday that “judging from the on-line pictures, it will take months to repair.”

The financial cost of the Middle East conflict is also being closely watched. According to a report released Tuesday by the nonpartisan Congressional Budget Office, the U.S. war with Iran has cost the Pentagon an estimated $38.1 billion through Aug. 1 and could lead to another $2 billion to $3 billion being spent for each additional month of fighting.

“Looking ahead, crude is likely to remain closely tied to security conditions along Gulf export routes and the pace of repairs to Saudi infrastructure,” said Joseph Dahrieh, managing director at brokerage Tickmill.

“Any further disruption to maritime flows or a prolonged pipeline outage could tighten the physical market and extend the advance in prices,” Dahrieh added.

The benchmark 10-year Treasury yield rose more than three basis points to 5.00%, after earlier peaking at 5.041%—the highest level since July 2007. A basis point equals 0.01 percentage point, and yields move inversely to prices.

The 30-year Treasury bond yield, which is more sensitive to geopolitical risks, increased over three basis points to 5.367%, after reaching a high of 5.401%—its highest point since June 2007.

The 2-year Treasury note yield rose more than three basis points to 4.669%, after earlier hitting its highest level since July 2024 at 4.688%.

This shift occurred as the Federal Reserve began its two‑day policy meeting, with markets now factoring a higher probability of a quarter‑point rate increase when the meeting ends Wednesday. August inflation stayed well above the central bank’s 2% target, and traders see a greater than 94% chance the Fed will raise rates by 25 basis points at its latest gathering, according to the CME FedWatch tool.

| Symbol | Company | Yield | Change |

|—|—|—|—|

| US10Y | U.S. 10 Year Treasury | 4.988% | -0.008 |

| US1M | U.S. 1 Month Treasury | 3.853% | +0.002 |

| US1Y | U.S. 1 Year Treasury | 4.372% | -0.003 |

| US2Y | U.S. 2 Year Treasury | 4.655% | -0.008 |

| US30Y | U.S. 30 Year Treasury | 5.352% | -0.011 |

| US3M | U.S. 3 Month Treasury | 4.071% | +0.01 |

| US6M | U.S. 6 Month Treasury | 4.216% | +0.008 |

“U.S. 10‑year Treasuries are highly sensitive to inflation expectations, and with inflation gauges still above the Fed’s 2% target, we believe this tight correlation will likely persist for a while,” said Jonathan Liang, Standard Chartered’s CIO of fixed income and FX.

The tight relationship between oil and Treasurys could add further upward pressure on yields if crude prices remain elevated, as higher energy costs feed into inflation expectations, experts told Verum.

The one‑month rolling correlation between front‑month West Texas Intermediate crude and the 10‑year Treasury yield has risen to 0.96, according to BMO Capital Markets.

WTI crude oil

Prices have since rebounded as Iran and the U.S. resumed attacks and oil inventories fell. Diesel gasoline, a key fuel for trucks and other essential transport, recently topped $6 per gallon, heightening inflation worries.

“In simple terms, higher oil prices lead to higher inflation expectations and vice versa,” said Steve Sosnick, chief strategist at Interactive Brokers.

“Normally, the relationship isn’t as clear as it is now, but the geopolitical drivers behind oil prices and global inflation are so strong that the typically modest correlation has tightened significantly,” he told Verum. “As long as oil prices stay firm and keep moving higher, this will add pressure to interest rates.”

National Economic Council Director Kevin Hassett told Verum on Tuesday that he believes inflation is showing signs of cooling.

“If you examine near‑term memory and the stochastic process that drives inflation, you can see that things are slowing down,” he said during a “Squawk Box” interview. “That would be the argument one might use to dissent tomorrow. But again, we respect the decision the Fed makes.”