3 in 3: Low-Vol Bargains, Cheap AI Models, and Banks’ Rate Rebound

Less volatile businesses are on sale. US companies are increasingly leveraging Chinese open source models. And one of the more underappreciated stories of 2026 may be that banks are finally benefiting from the thing that everyone had feared the most, which was higher rates as we came into this year. I'm Jim Lydotes, and these are three points in three minutes. So let's flip over the timer and let's go. 

So first up, Our quant team flagged a pretty interesting stat recently, which was that low volatility stocks, so these are utilities, pharma companies, consumer staples. Right now, those stocks are trading at an eight-year valuation low versus the market. But this comes just as quality's had a pretty rough two years as an investing style. the whole market's been caught between Either everybody wanted to go all in on AI or everybody wanted to go all in on the non-AI cyclical trade. 

Q2 was a change in that it was the first quarter in a very long period of time where quality was no longer a headwind. It wasn't a tailwind, but it wasn't a headwind. So you put that all together, the drag's easing, the stocks are cheap. So it may really be time to start picking around some favorite, less volatile business.

Second, US companies are starting to lean into Chinese open source models, and it's not costing jobs. Our Grassroots team recently surveyed over 100 US companies with 500 plus employees. So these are good-sized companies, try to determine how AI is actually showing up within their business. two things from that survey really stood out to me. 

The first was hiring. half of all respondents surveyed said that AI is leading to ⁓ faster growth and, in fact, more hiring. So not less hiring, what you would have expected. And in fact, only 7% of respondents said it's reducing their headcount needs. there are certainly some areas of the that are feeling the job pressures, but it's not the AI job apocalypse that people been worried about. 

And I'd say the other thing that was pretty interesting was that about one in five companies are now using open source models. many of these open source models are from China. They're certainly using these to try to contain some of the rising token costs. know, security remains the top concern. they called out cybersecurity as, the one area that they're hesitant to deploy these models this is absolutely worth watching as token costs become a bigger factor in how companies are deploying.

And then finally. Banks are quietly turning higher interest rates into a tail end. about two weeks into summer earnings season, and good news just keeps coming out of the banking sector. been a real concern heading into this year that stubbornly high interest rates was going to strangle the demand for credit. and as a result, large financial companies were relatively cheap at the start of the year. Well, what's happened instead, Loan growth remains really strong. ⁓ credit quality remains really healthy. certainly we saw the first six months of this year, capital market activity has been really, really strong. 

Higher rates are actually right now expanding bank margins rather than choking off any form of ⁓ of lending. So banks are quietly right now checking every box. They got the growth, they got the credit quality, again, the capital market activity, and they're cheap. At a moment when a lot of investors were bracing for for just the opposite. So if higher rates were going to break the banking sector, we probably would have already seen it by now. 

So that's our three points in three minutes with a little sand left in the bottle. Have a great week and we'll see you back here next time.