The S&P 500 index on Tuesday finished only about 1.9% off its record close from late January, getting an afternoon boost from a bounce in tech stocks after a brutal patch.
Concerns around AI no longer are limited in scope to potential overspending on artificial intelligence from a small group of high-flying tech companies. There's now also plenty of angst around AI threatening to make whole industries obsolete and risking white-collar jobs in the process.
"It seems that nobody knows what the world really looks like a year from now when it comes to AI," said Sameer Samana, head of global equities and real assets at the Wells Fargo Investment Institute, in a phone interview Tuesday.
One narrative being told is that AI basically "eats the world" and there are no entry-level jobs for anyone, Samana said, adding that another is that, in a year from now, AI will be incorporated into our workflows and there will be enough jobs for everyone.
Between the two extremes, investors have been buying up utilities, power generation and industrials - stocks that would underpin the AI race - but also defensive areas like consumer staples and fixed income. "You can throw the 10-year Treasury into that basket," Samana said.
Treasurys stage a comeback
Bonds have been making a comeback as weakness has hit tech stocks, which have long been the fulcrum point of this bull market. When bond prices move up, yields fall.
Selling in tech has been a drag on the overall S&P 500 SPX since October, as the below chart shows, even though the less tech-sensitive equal-weight version of the index XX:SP500EW has outperformed.
Amazon.com shares were off about 16% on the month through Tuesday, while those of Alphabet $(GOOG)$ $(GOOGL)$ and Meta Platforms (META) were more than 10% lower, and shares of Microsoft $(MSFT)$ were off 15.9%, according to FactSet. The iShares Expanded Tech-Software Sector ETF IGV fell 2.2% Tuesday, putting it 23.4% lower in 2026.
"What's really striking to me is that you have the stock market basically close to an all-time high," said Brij Khurana, fixed-income portfolio manager at Wellington Management. But there's also some tech and software stocks down more than 20% this year, he said.
"I think the bond market is taking a signal from that," Khurana said. Recent inflation and the labor-market data have eased some of the tensions in the Treasury market that were keeping yields elevated, he said, as well as more signs of stabilization in the Japanese bond market.
Yet a big concern is that companies in the second half of this year might need to start justifying their AI spending or even cutting labor, he said. "There are fears of job losses at some point."
The benchmark 10-year Treasury yield was largely unchanged Tuesday at about 4.05%, after briefly dipping to 4.02% overnight, according to FactSet. That left it about 10 basis points above its one-year low of 3.95% set on Oct. 22, 2025, according to Dow Jones Market Data.
It's been a "shoot first, as questions later" backdrop for stocks, said Eric Stein, chief investment officer at Voya Investment Management. Similarly, the 10-year yield has been falling because it's "risk-off, and the risk-off is coming from tech," he said.
Another thing that's provided a backdrop in which bonds can rally has been the dearth of policy surprises since the Greenland dispute that briefly had President Donald Trump threatening more tariffs on European allies.
"That relative calmness in terms of what was coming out of Washington allowed the Treasury market to catch that bid in a way that had proven more challenging during other periods," said Amar Reganti, fixed-income strategist for Hartford Funds.
Yet Reganti also doesn't foresee a significant further drop in 10-year rates, even if the Federal Reserve probably has more flexibility to lower rates after recent jobs and inflation data.
"I think we get a relatively robust year for U.S. economy," he said. And that would mean a more challenging backdrop for the rates market to move substantially lower.
