Artificial intelligence is drawing capital away from the broader stock market, creating a two-tiered environment where tech giants thrive while other sectors struggle. In September, Treasury yields surged from 4.7% to 5.3%, yet the S&P 500 dipped only slightly while the tech-heavy Nasdaq-100 gained 3%. Under the surface, nearly 80% of S&P 500 stocks declined, with the average stock dropping 5%.
The Russell 2000 index of smaller companies fell 5%, contrasting with a 2% rise in the top 50 stocks. Within the S&P 500, 41 of the largest 100 stocks rose, while only 10 of the smallest 100 constituents gained. The common denominator for risers is AI and data-center supply-chain exposure.
Outside the AI sector, companies face a triple threat of higher interest rates, elevated oil prices, and competition for resources. UBS Chief Economist Arend Kapteyn notes that capital expenditure, excluding AI technology, is running at zero. Analyst earnings forecasts, which had risen solidly since February, have flatlined in recent weeks, signaling the end of the early-year profit boom.
The path to lower yields depends on whether oil prices calm or whether AI gains spread rapidly across the economy, potentially averting a broader market downturn.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing