Why Rising Rates Could Break the Bull Market Before AI Spending Can Save It

Key Points

• Rising rates, driven by a roughly $2 trillion deficit and AI data-center borrowing, could interrupt the bull market, though a one-day crash looks unlikely.
• A broad fund like the Technology Select Sector SPDR Fund offers AI exposure without betting on individual winners.
• Williams Companies, Enterprise Products Partners and Franco-Nevada offer dividend-backed exposure to energy and metals, with Cameco framed as a contrarian uranium play.

The bull market has run for roughly four years, and the bill is starting to arrive in the bond market. Washington is running a deficit near $2 trillion at full employment, AI data center builders are competing for the same pool of capital, and yields keep grinding higher.

That collision matters more than any single headline. Rising rates squeeze valuations, strengthen the dollar and turn bonds into a losing trade, leaving investors hunting for assets that can hold up without help from falling yields.

One longtime economist's answer isn't to flee stocks. It's to own businesses with fee-based revenue, rising dividends and exposure to commodities that stay scarce no matter what the Federal Reserve does.

Deficit Spending and AI Borrowing Are Pushing Rates Higher

Mark Skousen, macroeconomic strategist and economist at The Oxford Club, sees rising interest rates as the biggest threat to this bull market. A deficit that size forces the Treasury to keep selling debt, while the AI data center buildout competes for the same capital. Two heavy borrowers chasing the same dollars push yields up.

Stubborn inflation adds fuel. Oil and gasoline prices tied to the war in the Middle East, plus tariffs, keep prices elevated, per Skousen. Overseas, a yen carry trade he sizes near $1.5 trillion could unwind if Japanese rates rise faster than U.S. rates, adding more selling pressure on Treasuries.

A one-day collapse looks unlikely. Exchange circuit breakers halt trading after steep drops, making it hard to engineer a repeat of the 22.6% Black Monday plunge in 1987. A correction or bear market is a different story.

Supply Chain Spending Signals a Business Boom Below the Surface

Here's where it gets interesting. Skousen created gross output, a measure of spending across the entire supply chain rather than just finished goods, and the Bureau of Economic Analysis (BEA) now publishes gross output data by industry alongside gross domestic product (GDP).

Business-to-business (B2B) spending went nowhere for most of the past year. Then real B2B spending jumped almost 14% in the second quarter, by Skousen's reading, helped by easing trade tensions, fading supply chain snarls, tariff-driven investment flowing into the United States and the data center boom.

That changes the bear case—a downturn driven by rates could prove temporary if the business economy underneath is reaccelerating. Corporate profits sit at record highs, and few investors are fully invested, the kind of wall of worry bull markets tend to climb. The catch: rates need to come back down.

Broad Tech Funds Offer AI Exposure Without Picking Winners

Technology still drives the market, led by the Magnificent Seven and other AI names. Those stocks trade at steep multiples, though, and Skousen sees plenty of luck in picking individual winners.

He prefers breadth. The Technology Select Sector SPDR Fund NYSEARCA: XLK holds Apple NASDAQ: AAPL, Microsoft NASDAQ: MSFT, Broadcom NASDAQ: AVGO, and Palantir Technologies NASDAQ: PLTR, and Skousen credits it with beating the Invesco QQQ Trust NASDAQ: QQQ and keeping pace with the S&P 500 this year. It leans toward software and skips Tesla NASDAQ: TSLA and SpaceX NASDAQ: SPCX, two names he views as high risk with real potential.

What could change sentiment is a rate move sharp enough to compress tech multiples. A diversified fund doesn't remove that risk, but it does remove the single-stock blowup.

Pipelines and Uranium Anchor a Safer Energy Trade

Energy looks safer to Skousen, especially pipeline operators. They collect regular fees for moving products, which steadies results, and many are fueling data centers. Williams Companies NYSE: WMB and Enterprise Products Partners NYSE: EPD both pay rising dividends, a real cushion in a nervous market. Watch whether data center power demand keeps translating into fee growth.

Uranium is the contrarian corner. The metal sits near $90 a pound, per Skousen, yet uranium stocks have been in a bear market for more than a year after a speculative bubble popped. He sees the Global X Uranium ETF NYSEARCA: URA and Cameco NYSE: CCJ as possibly bottoming, though investors have called that bottom more than once. The catalyst is the commodity itself, since a spike in uranium prices could reignite the group.

Oil producers ConocoPhillips NYSE: COP, Exxon Mobil NYSE: XOM, and Chevron NYSE: CVX have done well this year on war-elevated crude prices.

Copper Strength and Royalty Models Offer Steadier Metals Exposure

Copper is approaching $7 a pound, a record, according to Skousen's figures. Data centers, chipmaking and aging U.S. infrastructure all need it, and few new mines are coming online. Southern Copper NYSE: SCCO and Freeport-McMoRan NYSE: FCX have outperformed uranium miners, making them, in his view, the more conservative resource plays.

The risk is the dollar. Higher rates keep it strong, and a strong dollar weighs on miners. That pushed Skousen toward Franco-Nevada NYSE: FNV, which collects royalties based on a percentage of revenue rather than profit margins and has a rising dividend policy. It tends not to rise as fast as miners, but it doesn't fall as hard either.

Kinross Gold NYSE: KGC, a pick from his newsletter last year, shows the contrast with a huge run followed by a steep pullback.

Fee Income and Scarce Commodities Offer a Cushion Until Rates Ease

These picks share one trait: insulation from rising rates. Williams Companies and Enterprise Products Partners earn fees regardless of commodity swings. Franco-Nevada earns on revenue, not margins. Cameco, Southern Copper and Freeport-McMoRan lean on commodities with constrained supply. The Technology Select Sector SPDR Fund spreads AI risk across many names.

The setup doesn't depend on timing the market's next drop. It does depend on rates eventually easing and on the gross output surge holding. If yields keep climbing, miners and richly valued tech take the most pressure.

Skousen also favors keeping some cash, with money market funds yielding about 4% while bond prices slide, and sees real estate turning into a bargain if mortgage rates above 6% pull prices lower.

Stay focused on the direction of interest rates, because that's what moves every one of these trades.

For a monthly read on the macro indicators behind these positions, get Mark Skousen's Skousen Report with a special offer.