Global stock markets have seen frequent fluctuations in recent months. John Burrello, Senior Portfolio Manager at Invesco, believes that among the many macroeconomic factors, the most critical for investors to monitor is the trajectory of interest rates and the bond market. This is not only because rates influence equity valuations, but also because the development of AI itself requires enormous capital expenditure.

Large technology companies need to continuously build data centers, procure chips, and expand infrastructure, which will still depend on capital market financing in the future. With the 10-year U.S. Treasury yield recently approaching the 5% level, Burrello notes that if bond yields continue to rise, corporate financing costs will increase, potentially undermining the sustainability of AI-related investments and subsequently altering how the market prices growth stocks. Therefore, interest rates are not just part of the macroeconomic backdrop, but could become the core variable triggering stock market volatility.

Regarding the Federal Reserve's policy meeting on Wednesday (the 16th), Burrello stated that with inflation pressures still present and economic growth remaining resilient, the Fed finds itself in a dilemma. While he does not expect any surprise outcomes from this meeting, the bond market and interest rate trends remain the core risks that could drive equity market volatility going forward. As the fourth quarter begins, bond market turbulence, U.S. midterm elections, and the corporate earnings season could all further amplify market swings.

AI remains the most important theme in global equity markets. Burrello argues that the current AI rally is distinctly different from the dot-com bubble of the past, because today's AI leaders generally possess strong profitability, robust cash flows, and rare growth rates. Therefore, he does not believe AI itself constitutes a typical bubble. However, what truly deserves attention is market concentration and the high degree of interconnectedness among companies.

U.S. equities already hold a disproportionately large weight in global indices, and within the U.S. market, big tech giants and cloud computing behemoths occupy prominent positions. These companies provide services to each other, purchase chips, and build data centers across the AI supply chain, meaning their revenues and capital expenditures are highly correlated. He points out that implied stock correlation, as reflected in the options market, is currently at extremely low levels.

In other words, while the market acknowledges that AI is a highly concentrated and interconnected theme, it simultaneously assumes that these related stocks will continue to move independently and offset each other in the future. Burrello believes this pricing dynamic may not be sustainable. If correlation rises from its current low level back to normal, overall market volatility could increase significantly.

Looking ahead over the next 6 to 12 months, Burrello expects market volatility to trend higher, although this does not necessarily mean equities will inevitably weaken. If AI applications gradually spread from big tech companies to other industries, with businesses improving efficiency through AI, the stock market could still maintain some upward momentum, though the process may be more volatile. In this environment, he believes the focus for investors is not to completely avoid equities, but rather to stay in the market with a more diversified approach that emphasizes income and volatility management.