Will increased competition for capital cause a correction in stocks?

Happy Tuesday out there, Team 42. It's your subscriber here, Darius Dell, to present our Macro Minute for Tuesday, August 18th, 2026. Hope everyone's having a great week. So as always, we'll start with the executive summary from today's lead-off morning note. Let's dive right in. Today's key macro question is, will increased competition for capital cause a correction in stocks? The short answer is the risk of this transitory bearish outcome is rapidly accelerating as long-duration debt sits at the center of investor worries, spanning inflation to financing the AI capex bubble, with sovereigns bearing the brunt of the costs thus far. Global sovereign bond yields are climbing. The 30-year nominal treasury yield reached 2007 levels. The 30-year nominal German boon yield reached 2011 levels. The 30-year nominal French oat yield hit 2008 levels. The 30-year nominal UK gilt yield reached 1998 levels. And the 30-year nominal JGB yield is nearing a record high. We view the next 12-month outlook as bullish for risk assets because the growth, inflation, monetary policy, fiscal policy, and liquidity cycles, are likely to generally be tailwinds through the second half of 2027. The next few months, however, may prove volatile because the monetary policy and liquidity cycles may become headwinds amid positioning cycle headwinds. By the dip, bubble risk is high. As always, we'll wrap up with a question from our community. This one's titled Liquidity Shortage. It says, if $2 to $3 trillion of capital getting allocated to AI builds that was not allocated 18 months ago, is this enough to move the long end of the curve? Also, is it a slowdown to issuance of long paper? So, yes and yes. We unpacked that in great detail on today's lead-off morning note where we essentially talked about the impact of this cost of capital competition, this capital competition on the cost of capital, on the sectoral distribution, particularly in the U.S. economy, and ultimately what this all means for asset markets, particularly in the context of our paradigm A through E framework, A being the geopolitically driven supply-demand imbalance in the treasure bond market, B being the cut phase of the cut-grow printout, B being the cut phase of the cut-down on the supply-demand balance, C being the cut phase of the cut-down on the supply-demand balance, D being the cut phase of the cut-down on the supply-demand balance, and finally, D being the cut phase of the cut-down on the supply-demand balance, which is the current menu of options that sovereigns have as acceptable alternatives to dealing with paradigm A. Paradigm C, which is our current paradigm, is the grow option, trying to run the economy hot to kind of boost the denominator, which is GDP or gross domestic income. And then, finally, paradigm D, which is the print phase of the acceptable menu of options to deal with the supply-demand imbalance, that disequilibrium in terms of printing the demand for the securities. Once you exhaust it, you exhaust paradigm B, C, and D, cut, grow, print, you ultimately wind up with paradigm E, at least historically, spanning hundreds of societies across thousands of years. And for those who may not be aware, paradigm E is major political realignment and total war. So, we'll wrap it up there. Darius Dahl here presenting our Macro Minute for Tuesday, August 18th, 2026. Best of luck out there today. We'll catch you back here tomorrow. Cheers. If you enjoyed this content, please remember to like and subscribe. Thank you. This content is for informational purposes only and does not constitute an offer or a solicitation. Reliance upon the information in this material is at the sole discretion of the viewer or listener. Investing involves risks. Any reference to a company, issuer, or investment strategy is for instructive purposes only and does not constitute investment advice. For full disclosures, visit 42macro.com backslash disclaimer.