U.S. markets moved higher Friday as investors focused on strong technology momentum and a growing artificial intelligence investment cycle despite ongoing tensions in the Middle East. Markets appear increasingly confident that the conflict involving Iran will avoid worst-case economic and energy supply outcomes, helping support risk appetite.
BNN Bloomberg spoke with Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, about why capital spending and business investment have become the key drivers of the current market cycle, why consumer-facing sectors could face mounting pressure from higher energy costs and how global technology stocks, including in China, remain attractive.
Key Takeaways
- Investors are increasingly looking beyond Iran tensions as markets bet against a major escalation affecting global energy infrastructure.
- Strong capital spending and AI-related investment continue to support economic growth and technology sector earnings.
- Consumer-facing sectors could face pressure as higher fuel and food costs weigh on household spending.
- The Federal Reserve is expected to remain on hold as U.S. labour market data continues to show resilience.
- Technology stocks in the U.S. and Asia, including China, are viewed as beneficiaries of the ongoing global AI investment cycle.
Read the full transcript below:
LINDSAY: The S&P is up again this morning, as a rally in tech stocks continues to lift U.S. index futures. Our next guest says the Iran war stalemate has the market convinced that worst-case scenarios are unlikely. Joining us now is Yung-Yu Ma, chief investment strategist at PNC Financial Services Group. It’s great to have you with us. Thanks so much.
YUNG-YU: Thanks, Lindsay. Great to be here.
LINDSAY: How are you assessing the current geopolitical risks posed by the conflict in Iran? Of course, we’re seeing developments almost every day.
YUNG-YU: There is news and there are developments coming out, but we do think what the market is taking comfort in is that some of the worst-case scenarios — wide-scale damage to Middle East energy infrastructure — look less and less likely here. It doesn’t seem the sides are moving toward mass escalation, and even though negotiations aren’t really yielding results, the stalemate is enough for the market to focus on other things happening right now, including strong earnings and a big CapEx cycle. I think that’s what the market is shifting toward.
There are going to be some consumer headwinds as these cost pressures and inflation filter through the system and start to pressure people’s spending ability.
LINDSAY: I want to go back to what you said about worst-case scenarios being unlikely. I take your point, but how are you factoring in other risks, like the possibility the Strait of Hormuz could remain closed longer than originally expected?
YUNG-YU: It’s definitely longer than originally expected and it looks like it could continue for a while. But we believe — and I think the market is keying off this as well — that there’s strong impetus from the U.S. side to get energy flows moving again.
Exactly what that means and how a deal comes together is unclear, but broadly speaking there’s strong interest in restoring those energy flows, not just from the U.S. but also from China, which has some leverage over Iran as well. We think that’s likely to yield results, maybe not in a week or two, but most likely within a month or two.
LINDSAY: You also mentioned CapEx and AI spending are driving the market cycle more than consumer spending right now. How does that shift your investment strategy compared with periods when consumers were more of the driving force?
YUNG-YU: Consumer spending is often relatively stable. Earlier this year there was enthusiasm that tax cuts and stimulus in the U.S. could help consumers and provide an extra boost to the economy and spending. But right now, given what’s happening geopolitically, the market is really relying on a very strong CapEx and business investment cycle.
Fortunately, that CapEx cycle has actually surprised to the upside. It’s not just high — it’s still accelerating from already elevated levels. The market is taking encouragement from the fact that one company’s investment expenditures become another company’s revenue, and that creates a multiplier effect for the economy that’s quite strong right now and looks likely to persist for several quarters.
LINDSAY: Is that what you mean when you call CapEx and business investment the “swing factor”?
YUNG-YU: Absolutely. Even though CapEx and business investment tend to make up a relatively modest share of U.S. GDP — somewhere in the low-to-mid teens — consumer spending accounts for around 70 per cent of GDP. But consumer spending is relatively stable, while CapEx can fluctuate significantly.
Sometimes it’s very low, sometimes modest and sometimes very high. So even though it’s a smaller part of the economy, it can have an outsized impact on economic cycles. That’s what we’re seeing right now. Given how much cash companies have on their balance sheets — historically high levels compared with previous decades — they’re now spending and investing that money, and it’s having a major impact on the economy.
LINDSAY: Consumer spending may be relatively stable now, but we are seeing higher gas and energy prices. That’s going to have a trickle-down effect over the next few months. What do you expect happens there?
YUNG-YU: I think you’re going to see more bifurcation in the market. Companies and parts of the economy tied more closely to business investment and CapEx are likely to do well, while companies more reliant on consumer spending — especially middle- and lower-income consumers — are probably going to face more headwinds.
We’re already seeing that in earnings revisions. Following first-quarter earnings, revisions for the second quarter were positive for tech and a few other sectors, but consumer discretionary and consumer staples saw modestly negative revisions. We think that bifurcation will continue as higher prices at the gas pump and higher diesel costs filter through into food prices and become more prominent for consumers.
LINDSAY: I want to switch to jobs now, specifically the U.S. adding 115,000 jobs in April. That’s the first back-to-back increase in almost a year. How do you expect those numbers to affect the Federal Reserve’s decision on rates going forward?
YUNG-YU: I think the Fed is on hold for the foreseeable future. That was a nice upside surprise in jobs data, and last month was also an upside surprise. Weekly initial unemployment claims also continue to come in at quite low levels, so those are positive surprises as well.
The U.S. labour market is holding up much better than people expected given the broader growth profile and concerns about AI potentially displacing jobs. I think that gives the Fed more confidence to stay on hold for the rest of the year and let the inflation story play out. We don’t think there’s any realistic possibility the Fed raises rates, but the bar for cutting rates is also very high when the labour market remains this resilient. So for now, the Fed appears firmly on hold.
LINDSAY: I also wanted to get your view on investment strategy right now, both within and outside the U.S.
YUNG-YU: Within the U.S., our preference remains technology and the AI theme. That’s something we continue encouraging clients to lean into. We think there’s still a very long runway ahead and we don’t believe we’re in the late innings of either the business investment cycle or the AI cycle.
Globally, we think there are positive developments happening in parts of Asia as well. The technology sector in Asia continues to look strong, so we’re leaning into that. We also think there could be a catalyst next week when President Trump visits Beijing and meets with President Xi. That could be positive for Chinese equities, particularly Chinese technology stocks.
That’s an important part of the broader global technology cycle. There’s significant innovation happening in China, and both China and the U.S. likely have strong interest in reaching some form of trade agreement. It may not be a sweeping deal immediately, but this visit could mark the beginning of broader negotiations. We’re encouraged by those international developments, particularly around technology and innovation.
LINDSAY: It’ll be interesting to see how that meeting next week affects markets. We’ll leave it there. Yung-Yu Ma, chief investment strategist at PNC Financial Services Group. Great to have you with us this morning.
YUNG-YU: Thanks so much.
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This BNN Bloomberg summary and transcript of the May 8, 2026 interview with Yung-Yu Ma are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
