Wall Street's wider weakness keeps AI trade rolling

A narrow group of AI-related companies has reportedly become the primary driver of US equity market performance. JPMorgan Private Bank data indicates that 41 AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth since ChatGPT's launch in November 2022. This concentration is also reflected in earnings forecasts, with LSEG projecting that Technology and Communication Services will deliver 42% of the S&P 500's third-quarter earnings, expected to rise to 45% in the fourth quarter.

This sustained focus on AI investments appears to stem from external market conditions rather than solely the internal strength of the tech sector. The reporting suggests that tepid growth across other economic sectors is limiting investment alternatives, which in turn prevents a broader rotation of capital out of technology. This dynamic reportedly perpetuates a reliance on AI, even when "red flags" concerning spending within the sector are noted.

Despite instances of market turbulence linked to AI jitters, these downturns have generally been short-lived. For example, a recent S&P 500 fall saw 337 of its 500 stocks actually rise, as reported by Deutsche Bank's Jim Reid, indicating a narrow impact. Market benchmarks have shown quick rebounds even after events like Anthropic's initial public offering filing, which typically would not be expected to boost equity prices, suggesting investors perceive limited options for deploying capital.