Labour data, inflation and AI-related debt issuance will be among the key themes shaping US equities and fixed income markets this week, says Christian Roth, global co-CIO at Northern Trust Asset Management. In this episode, Roth also discusses the role of bonds in a diversified portfolio despite persistent inflation risks, and shares his outlook on the growing volume of AI debt issuance from some of the world’s largest tech firms. Looking ahead, Roth takes the less-consensus, positive outlook on the remainder of 2026, posing the question: what could go right in the months ahead?

Interview

Josephine Gallagher – Welcome to Trader TV This Week. Today I’m joined by Christian Roth, global co-chief investment officer at Northern Trust Asset Management, to discuss the main topics and events shaping markets and trade execution. Christian, it’s lovely to have you on.

Christian Roth, NTAM – Thanks so much for having me, Jo.

Josephine Gallagher – So for this conversation, we’re going to talk about US equities and fixed income. And to set the scene for our audience, tell us what has been driving market activity, asset valuations, and what will be informing your investment outlook this coming week.

Christian Roth, NTAM – I think it’s a really important week to look forward to. It’s a really important macroeconomic week, both in terms of labour data and in terms of inflation, with a little bit of a twist thrown in. You know, on the labour side, there are three really key labour reports. We’re going to get the JOLTS report. Remember, the JOLTS (Job Openings and Labour Turnover Survey) report has really set us up for this low-hire, low-fire world where job growth has been very muted, but that’s been okay, and unemployment has held low. We’re looking out for signs that maybe job openings might start to pick back up, that might corroborate some of the enthusiasm that we’ve seen in recent PMI (Purchasing Managers’ Index) surveys. We have ADP (ADP national employment report) coming on Wednesday. ADP has been a more real-time series, and it might give us a bit of a look ahead, you know, towards Friday. But of course, all eyes will be on Friday, where we get the Bureau of Labour Statistics monthly report. It’s been a very variable series with really large revisions. Last month was all up, 160,000 new jobs and revisions to the two prior months. You know, does that mean that we’ll get a big move down in revisions and softer. We don’t know, but one of the things we’re looking for again is signs that the economy is picking up steam here, and a strong labour report again this month might tell us that. We also have to talk about inflation because, you know the most important inflation report of them all, the Consumer Price Index, core PCE deflator comes out on Wednesday. You know that has been the number that’s been the highest of all of them, running above 3%. We’re expecting a number that’s still above 3% in the neighbourhood of 3.3%, but perhaps with monthly readings somewhat more muted.

Josephine Gallagher – Understood. Thank you for that recap. So I want to also talk to you about you know obviously in the environment that we’re in right now. In periods of persistent inflation, there can be positive correlation between equities and bonds. So I wanted to ask you, from your view, what is the role of bonds in a diversified portfolio in this kind of environment?

Christian Roth, NTAM – You are absolutely right that bonds and equities can become positively correlated. They go up in price together or down in price together, and they do that because, in general, they respond to shocks in the market where stock valuations are lower. Lower interest rates bring higher bond prices. It cushions portfolios and it diversifies it. You know that happens 90-95% of the time, but there are those periods 1994, 2022 where the correlations flip. They often flip because the market is shocked. It’s shocked by inflation. It’s shocked by interest rate rises. It’s shocked by a supply shock itself, and it’s all very memorable from 2022. Bonds and stocks have negative returns together. I think it’s important to remember that 2022 was an incredibly exceptional event. Historically, we have almost never had negative bond returns in US Treasuries, and even when we do, they’ve been relatively muted: negative two, negative 3%. It would take an incredible amount at these kind of interest rate levels to lead to negative bond returns from here. So, what does that all mean for us in an environment like we are today, where there are risks to the upside on inflation, on rates, and on and on supply shocks? There’s still a role for bonds in fixed income portfolios. We have meaningful allocations to fixed income, but we are underweight in our asset allocation, and we’ve replaced some of that bond exposure with real assets, listed infrastructure, natural resources, and real estate.

Josephine Gallagher – Understood. Also, earlier this year, we saw that there were growing concerns around the concentration in Mag 7, the hyperscalers of the world, and the growing volume of debt issuance. Now we have seen, in terms of the equity side, valuation side, that market broadening out to mid to smaller cap. But are you still concerned about this debt issuance element and the concerns around that, and what are your projections?

Christian Roth, NTAM – So the scale, the magnitude of the capital raise from the hyperscalers is absolutely massive. Over the coming years, $5 to $6 trillion, well above what can be funded fully out of free cash flow. Historically, it has been funded out of free cash flow, maybe. It will again in the years ahead as these companies become ever more profitable. But right now, it’s going to have to be funded by the fixed income markets, both public and private, investment grade and high yield. To put it in perspective, we might need to see as much as $2 trillion funded from the investment-grade corporate bond market. You know that could be 15% of the overall market. Indeed, it’s been 15% of issuance this year so far, and still growing. The largest issuers already are one or one and a half percent of the US investment-grade market, and are likely to double from here. There are concerns as to whether or not the market can absorb it. I’ll assert that the market can absorb it. The market has absorbed very large issuance in the past from automakers, telecom companies, and indeed banks are already very large issuers in the market. The largest US banks are more than 2% each of the market. They make up a quarter of the market. And so this evolution, as it happens over the next five years, will change the nature of the public investment-grade bond markets, but it’s not certainly something that we need to be afraid of. These companies are likely to offer an additional yield premium for their size and scope in the market, and that may make them very attractive investment opportunities because they are still, at their core, incredibly profitable with great free cash flow generation.

Josephine Gallagher – Really interesting. Now to wrap things up, like what have we missed out in this conversation? What should trading investment tasks be paying close attention to this upcoming week?

Christian Roth, NTAM – One of the things we think about and talk about a great deal is what can go right rather than what can go wrong. I think it’s human nature that we focus on left-tail risk. You know, the things that are a clear and present danger. You know, today those are rates, inflation, AI, geopolitics. But in each of those areas, there’s something that could go right. It’s possible that much of the rise in interest rates, 100 to 175 basis points in US Treasuries, might well be behind us. Macro data could get better. Inflation is likely already peaked and could fall next year. Corporate earnings will be starting in a couple of weeks, and we could have confirmation of really, really strong earnings growth, upwards of 25% or 30% earnings growth this year. AI could be a source of productivity improvement that could help with debt and deficits. And then finally, while geopolitics is inherently unpredictable, there are signs that there might be potential off-ramps being sought in a number of the hotspots around the world. So instead of what might go wrong, you know, we might posit the question: What could go right in the week or the months ahead?

Josephine Gallagher – Thank you very much, Christian, for your time. Thank you very much for joining us.

Christian Roth, NTAM – Thanks again, Jo.

Josephine Gallagher – I’d like to thank Christian for his insight and, of course, you for watching. This has been Trader TV This Week.