CNBC The Exchange
2026-09-28 · Hosted by Kelly Evans · CNBC
Executive Summary
Brian Sullivan opened by noting stocks were mostly higher despite rising yields and oil holding in the low $90s, with the 10-year at 5.18%. Piper Sandler's Michael Cantrowitz told Sullivan that AI-related stocks now make up more than half of the S&P 500, but said valuations reflect real earnings strength rather than the "peak multiples on peak earnings" seen in the late 1990s. He noted the market has become more negatively correlated to interest rates than at any point in his career, and warned that while mega-caps have re-rated on strong earnings, the average stock — visible in the equal-weighted S&P and Russell 2000 — has done "nothing" for four months as rate pressure mounts.
Key Stories & Changes
1. AI Now Over Half the S&P 500 — Valuation Debate Continues
Piper Sandler's Michael Cantrowitz: AI-related stocks now exceed 50% of the S&P 500's market cap
Unlike the late-1990s dot-com peak, he said current valuations reflect real earnings growth, not just multiple expansion, making the concentration "less concerning" for stock-pickers than passive index investors
The market has never been more negatively correlated to interest rates in his career — meaning higher rates are now the single biggest risk to equities, a reversal from his first 20 years covering growth scares
Market multiples are down 14-15% this year, offset by strong earnings; that earnings cushion is "not necessarily going to repeat" over the next 12 months
2. Average Stock Struggling Beneath Index-Level Strength
The equal-weighted S&P and Russell 2000 have had a "very bad couple of months," pressured by higher rates and higher carrying costs
The average stock has "done nothing" for the last four months even as headline indices near highs
Cantrowitz's recommended hedges: (1) own energy, the only sector positively correlated with rates; (2) diversify across rate-correlated sectors rather than concentrate in one; (3) favor value strategies and higher-profitability, higher-quality names over growth for the next 12 months
3. Bond Strategist: This Is a Rebalancing Opportunity, Fed Made a "Mistake"
Gilbert Garcia (Garcia Hamilton, "bond king of Texas"): current bond yields are among the most oversold in three years; high-quality mortgage-backed securities are yielding close to 6%, above many pension funds' return assumptions
He expects rates to rally roughly 110 basis points in under three months, based on the pattern from three years ago at similar oversold levels
Garcia called the Fed's rate hike a "significant policy mistake," citing near-record-low consumer confidence and a housing market he believes is already in recession
Recommended buying across the yield curve — cash into 2-3 year notes, short-duration into 5-year — and said he would buy TLT, which has fallen from 160 to 79 over six years and sits near 20-year lows
4. Iran Negotiations: "No Flexibility," Real Power Lies With the IRGC
RBC's Helima Croft said Iran continues to demand the MOU be fully implemented — including billions in frozen accounts unlocked and full sanctions relief — as the price for reopening the Strait of Hormuz
She emphasized that civilian negotiators in the room are not the ultimate decision-makers; the IRGC holds final say on military actions and may believe it has more leverage before the midterms
New Reuters reporting cited: Iran will show "no flexibility" on its nuclear program even if the US accepts its Hormuz reopening proposal
Gulf states are reportedly angered that the US included Hormuz language in the original MOU, which they see as having granted Iran implied authority over the waterway
France has indicated it will provide military assistance protecting Saudi assets after the US "took a pass" on a two-front commitment
5. Mortgage Rates Spike, Manhattan Rental Market "Through the Roof"
30-year mortgage rate hit 7.49%, up 28 basis points over two days (per Mortgage News Daily)
Comparison: a $450,000 home at 20% down cost $2,156/month (P&I) at March's 5.99% low; today the same purchase costs over $350/month more
Sotheby's broker Peter Zaitsev said mid-tier Manhattan buyers ($1.5-5 million, needing mortgages) have been "totally pushed out" of the market, forcing them into renting
Manhattan one-bedroom rents now average $8,000-10,000/month; Zaitsev cited one renter paying $150,000/month
Zaitsev's proposed fix: revive 421-a-style tax abatements to incentivize affordable-unit construction, including in the outer boroughs
6. Federal Appeals Court Upholds Pentagon Blacklist of Anthropic
A DC federal appeals court ruled 2-1 to uphold the Pentagon's designation of Anthropic as a "supply chain risk," originally made in February, barring the military and defense contractors from using Claude
The majority opinion cited "ample support" for the conclusion that continued Claude use could present a national security risk
CNBC's Kate Rooney said the dispute centers on how Claude was trained; officials (including Emil Michael) have criticized the model as overly cautious/"woke" and prone to refusing tasks it deems immoral — a liability framed as a battlefield risk
Anthropic separately won a related case in a San Francisco federal court, and said it "respectfully disagrees" with the appeals ruling and is considering further review
Trends Identified
1. Rates Have Replaced Growth Scares as the Market's Primary Risk
Cantrowitz's observation that equities are now more negatively correlated to interest rates than at any point in his career reframes the entire market narrative: since 2022's inflation shock, rate moves — not growth data — are the dominant driver of index-level performance.
2. Index Strength Masks Broad-Based Stock Weakness
The gap between resilient headline indices and a struggling equal-weighted S&P/Russell 2000 is a recurring theme across this episode and others in the daily roundup, reinforcing that AI concentration is doing more work than broad economic health.
3. Fixed Income Increasingly Framed as Competitive With Equities
Garcia's aggressive bond-buying recommendation, paired with high-quality MBS yields near 6%, reflects a broader shift in professional sentiment toward viewing bonds as a legitimate rebalancing target rather than a low-yield afterthought.
4. Housing Affordability Crisis Spreading Beyond Starter Homes
The combination of 7.49% mortgage rates and a paralyzed mid-tier Manhattan market shows affordability stress is no longer confined to first-time buyers — it's pushing even higher-income buyers into an overheated rental market.
5. AI Governance and National Security Risk Becoming a Regulatory Battleground
The Anthropic blacklist ruling signals that AI safety design choices are now directly shaping which companies can access lucrative government contracts, a dynamic likely to intensify as other agencies weigh similar restrictions. ---
Sentiment Analysis
Overall Market Sentiment: Divided — Equities Resilient, Bonds Alarmed
The episode captures a split-screen sentiment: stock-focused guests remain constructive given earnings strength, while bond-market voices see current conditions as a clear warning sign and buying opportunity in fixed income.
Risk Factors Highlighted
Rate sensitivity of equities at an all-time high: The market's negative correlation to interest rates is the strongest Cantrowitz has seen in his career, making further yield increases a direct equity risk.
Weak average-stock performance: The equal-weighted S&P and Russell 2000 have stagnated for four months, masking underlying fragility.
Housing market strain: 7.49% mortgage rates and a housing market described as "already in a recession" threaten broader consumer spending.
Manhattan mid-tier real estate freeze: Buyers needing mortgages in the $1.5-5 million range have been pushed entirely out of the market.
Stalled Iran negotiations with IRGC leverage: The actual decision-makers may see more benefit in prolonging the conflict, keeping oil price risk elevated.
Federal deficit growth: Referenced as a factor pressuring yields alongside a national debt approaching $4 trillion (in context of related discussion).
AI regulatory/national security risk: The Anthropic ruling shows AI design and safety choices can now directly restrict a company's addressable market.
Earnings growth deceleration: Cantrowitz warned the earnings cushion that offset 2026's multiple compression "is not necessarily going to repeat" in the next 12 months.
This episode was covered in today's [The Market Signal — 2026-09-28](https://marketsignal.beehiiv.com/p/the-market-signal-2026-09-28), a cross-source synthesis of multiple podcast reports.