Key Takeaways
- Investors are rushing to bonds as tech and artificial intelligence (AI) stocks slump, driving 10-year real yields to a low of 2.58%.
- Economists warn that global market growth is dangerously dependent on inflated AI and tech expenditures.
- Experts predict an AI bubble burst will trigger a market drawdown and force a massive US government bailout.
Bonds Surge As A Hedge Against US AI Sector Stagnation
While the US economy reported hotter-than-expected growth numbers during the last quarter, surprising some, investors are concerned about the source of this growth and how it might stagnate in the coming months.
According to the Financial Times, the bond trade has been growing after the recent recoil in the tech AI sector driven by companies like Intel, Meta, Amazon, and Alphabet, which all experienced relevant drops in market capitalization last week. This took real yields to reach seasonal lows, with the 10-year numbers reaching as low as 2.58% this week.
This effect is explained by more investors rushing to bonds as they reassess the capabilities of the U.S. tech/AI sector to keep growing, betting on these performing better than stocks.
“The market had been underwriting strong growth — underpinned by AI and the expectation that there would be some relief in the Middle East — and now we’re re-evaluating some of the growth expectations,” said Bill Campbell, portfolio manager at DoubleLine.
Jason Granet, chief investment officer and head of credit services at BNY, also referred to investor worries about these AI companies having the ability to maintain their growth levels moving forward. “Because AI companies grew so much last year, it will be harder to beat those numbers. Growth may be decelerating, but it doesn’t necessarily signal weakness in the economy,” he declared.
Similarly, other economists showed concerns about the composition of the growth of stock markets in U.S. and global markets, with tech and AI spending increasingly becoming a driving factor.
Vincent Reinhart, chief economist at BNY Investments, assessed that the current state of affairs was worrisome.
“It is so heavily dependent on technology expenditure. And it is not just a U.S. phenomenon; it’s a global phenomenon. You don’t have to be a tech pessimist to be worried,” he declared.
Not only traditional economists have warned about the effects of inflated spending on AI and tech in the U.S.
Arthur Hayes, co-founder of the now-defunct BitMEX exchange, has also expressed that the inevitable burst of the AI bubble will cause a market drawdown, with the U.S. government ultimately swooping in to save the too-big-to-fail AI giants by printing millions.
