As the global economy continues to evolve, the AI-driven earnings engine has become a powerful force, leading to a complex battle between bulls and bears. While corporate profits and technological innovation offer ammunition for the bulls, concerns around yields, deficits, sustainability, and circularity of AI spending give the bears reason to be optimistic. The return profile from here is becoming increasingly negatively skewed, leaving investors with difficult decisions to make.

On one hand, the bulls have valid reasons to be optimistic. With the help of AI-driven capex, corporate profits are soaring, and technological innovation is creating new opportunities for growth. The resilient economy also provides a solid foundation for continued success. However, the bears are not far behind, highlighting the potential drawbacks of the AI-driven earnings engine. Yields, deficits, and the sustainability of AI spending are all major concerns, as is the impact of higher oil prices and prolonged conflicts on the economy.

Despite these challenges, investors remain comfortable running healthy gross exposure, although it is below levels seen in May and June. To mitigate risks, they are adding duration and hike-risk protection, as well as rotating into more defensive pockets of the market. The battle between bulls and bears will continue to rage on, as the AI-driven earnings engine continues to shape the global economy.