Despite crude prices holding above $100 per barrel and Treasury yields reaching their highest point in roughly two decades, institutional investors have largely kept their equity allocations intact, buoyed by steady outlooks for corporate profits and continued spending on artificial intelligence.

On Wednesday, Brent crude futures hovered near $105.12 per barrel following a 3.3% drop, with West Texas Intermediate holding at approximately $101.72. Global commodity prices have stayed elevated amid ongoing conflict involving Iran and persistent disruptions to energy infrastructure and shipping lanes across the Middle East and Europe.

The benchmark 10-year U.S. Treasury yield climbed above 5% on Tuesday, a level not seen since 2007, adding strain to bond markets. On Wednesday, the rate dipped slightly yet held near levels not seen in several decades.

Equity markets have grown more turbulent amid these pressures, though large-scale investors have yet to make a clear move away from equities. According to Bank of America's latest Global Fund Manager Survey, 49% more portfolio managers held overweight positions in global equities than underweight ones during September, making the asset class the top overweight holding across the industry.

The poll, which encompassed 170 investors managing a collective $470 billion in assets, revealed that the elevated appetite for risk observed over the summer months had begun to moderate. Bond allocations dropped to their lowest point since May 2022, even as investors held a broadly optimistic outlook on economic expansion and corporate earnings, according to a news outlet.

Fund managers' outlook on corporate earnings turned notably optimistic, with forecasts for double-digit earnings-per-share growth over the coming year climbing to their highest point since August 2021. Roughly 38% of survey participants anticipated a worldwide economic expansion in the year ahead.

Equity markets delivered a robust performance over the past year, even as elevated energy costs, tightening borrowing conditions, and geopolitical pressures weighed on the broader environment. Equity markets have experienced a turbulent stretch this week, with traders balancing questions about the trajectory of artificial intelligence development against ongoing investment in AI infrastructure.

Institutional investors have grown more attentive to climbing government bond yields as a source of portfolio risk. According to Bank of America's September poll, an uncontrolled rise in bond yields had displaced concerns about an AI bubble as the top perceived tail risk among market participants.

Nevertheless, major fund managers have kept considerable portions of their portfolios in equities. The BlackRock Investment Institute noted this week that elevated borrowing costs worldwide had raised the bar for portfolio returns, though the organisation maintained its overall appetite for risk assets. The company continues to favour American equities and artificial intelligence-linked assets while reinstating an overweight allocation to developing-market shares.

According to BlackRock, the extent to which elevated yields weigh on equities depends in part on the underlying factors pushing borrowing costs higher. Robust corporate earnings during periods of stronger investment and economic expansion can partially counterbalance the elevated borrowing costs that tend to accompany higher interest rates. The company anticipates that ongoing investment in artificial intelligence will underpin expansion and corporate earnings, even as the buildout draws on growing volumes of capital, power, and other inputs.

The investment firm identified semiconductors, memory chips, data centres, and power infrastructure as sectors where rising demand is outpacing available supply.

Expenditure on artificial intelligence continues to feature prominently in market forecasts, though shareholders are now scrutinising whether the substantial funds flowing into data centres and supporting infrastructure will eventually generate meaningful gains in revenue and earnings. UBS Global Wealth Management has continued to prioritise artificial intelligence-related demand, even amid recent turbulence across financial markets.

In a note to clients, cited by a news outlet, the firm's chief investment officer Mark Haefele identified the central question as whether AI demand and companies' capacity to monetise the technology would sustain their growth trajectories. According to Haefele, UBS maintained its preference for a broad allocation across the artificial intelligence value chain, spanning chip manufacturing, network infrastructure, energy supply, cloud computing, and established software platforms positioned to gain from wider AI uptake.

When government bond yields climb, equity markets face headwinds, as elevated rates push up borrowing costs throughout the broader economy while offering investors comparatively stronger returns outside of stocks. Higher oil prices tend to raise operating expenses for businesses and put upward pressure on the cost of living.