Market Pulse

Equity markets turned more selective as investors began questioning whether AI adoption is translating into measurable productivity gains. Broad indices held up, but internal dispersion widened sharply. AI suppliers outperformed AI users, suggesting skepticism about near-term payoff for the real economy.

Bond markets reflected that doubt. Yields drifted lower as growth expectations softened, even while equity valuations remained elevated. This divergence is important for you because it signals a disconnect between narrative-driven equity pricing and macro-driven rate markets.

Currencies were stable, but risk appetite weakened at the margin. Commodities linked to industrial activity softened, while energy remained volatile amid geopolitical noise.

The underlying theme was reassessment. AI optimism is no longer enough on its own.

Deep Dive

The critical question markets are now asking is simple: where is the productivity? AI investment is surging, corporate spending is accelerating, and adoption headlines are constant. Yet macro productivity data remains subdued. That gap is becoming uncomfortable for investors.

Historically, productivity revolutions take time. However, markets rarely wait patiently. When expectations run far ahead of realized gains, valuation risk rises. You are seeing this dynamic emerge now. AI suppliers continue to report strong demand, but AI users are struggling to show margin expansion or cost savings at scale.

This matters because productivity is the mechanism through which AI justifies higher equilibrium growth, lower inflation, and easier monetary policy. Without it, AI becomes a cost center rather than a growth engine in the near term. That challenges both earnings assumptions and macro narratives.

Another risk is labor displacement without output acceleration. If AI adoption reduces headcount but does not materially increase output, consumer demand weakens, and political scrutiny rises. That creates second-order risks for regulation, taxation, and adoption speed.

Markets are starting to price this uncertainty. Bond markets are signaling slower growth, while equity markets are clinging to long-term optimism. This tension increases volatility and raises the bar for execution.

Your investor takeaway is disciplined skepticism. Maintain AI exposure, but favor companies that can demonstrate tangible efficiency gains, not just deployment. Watch operating margins, not product announcements. Productivity, not potential, will determine the next phase of AI valuation.

Quick Insights

• AI investment is rising faster than measured productivity, creating valuation tension.

• Equity optimism and bond caution are diverging, increasing macro volatility.

• AI suppliers outperform AI adopters, signaling uneven benefit distribution.

• Productivity data will increasingly drive AI-related repricing decisions.