How's the stock market doing, minus AI?

Kai Ryssdal (0:02)

Okay, wait, maybe I've been totally wrong?

From American public media, this is Marketplace.

In Los Angeles, I'm Kai Ryssdal. It is Wednesday today. This one is the 7th of October. As good as it always is to have you along, everybody. I have been saying for a very long time on this program that the stock market is not the economy. I have, and this is true, I have a sweatshirt at home in my closet that says that on it. So believe me when I tell you that the words that are about to come out of my mouth hurt. It is possible, possible, that the stock market is right now anyway the economy. Stocks are an ever-increasing share of total household wealth in this country. That wealth effect, it's called, is real, and so consumers spend more, even consumers who don't own stocks. GDP is being driven in no small part by the zillions of dollars being spent on AI, and those companies' valuations are driving stocks higher. So all of that is happening. The catch is that of the 500 big companies listed in the S&P 500, like seven of them have been driving it to record highs. The other 493 or whatever, Marketplace's Sabri Benishaw starts things off.

Sabri Benishaw (1:38)

All right, let's take out the NVIDIA, the Microsoft, the Amazon, the Micron. We know they're doing great, so happy for them. How, though, is everybody else doing?

Matt Orton (1:49)

Not so great right now.

Sabri Benishaw (1:51)

Matt Orton is chief market strategist at Raymond James Investment Management. When the S&P 500 hit its latest record high on Tuesday, only 24 stocks actually hit highs for the year. 24 out of 500

Matt Orton (2:04)

There's a significant bifurcation between everything that's tech and artificial intelligence versus everything else in the market.

Sabri Benishaw (2:12)

It wasn't this serious even a few months ago. Matthew Pagnati is a senior research analyst at Capital Advisors Group.

Matthew Pagnati (2:18)

All the good performance was weighted to the bottom companies, not to the Mag-7, not to the AI names, but to these other guys who were kind of catching up.

Sabri Benishaw (2:26)

And then things changed. The chair of the Federal Reserve gave a big press conference in August, strongly suggesting interest rates were probably going to be going up.

Matthew Pagnati (2:35)

Became clear that the Fed was going to start raising rates. Then all those companies and all those sectors that were doing well kind of up until that point flipped over. And while the AI trade started ripping, these guys have kind of been struggling.

Sabri Benishaw (2:47)

And interest rates did go up, and mortgage rates went up, and bond yields went up. Also, the price of diesel went up. For normal non-tech companies living down here on Earth, these were all bad things.

David Lefkowitz (2:59)

There are businesses that are tied to, say, the housing market with mortgage rates at now more elevated levels. It's not surprising that we've seen investors rotate out of that area.

Sabri Benishaw (3:11)

David Lefkowitz is head of US equities at UBS. Home builder Lennar is down 27% this year. DoorDash down 13%.

Tyson Foods down 12%.

David Lefkowitz (3:21)

There are parts of the stock market that are correlated to interest rates and to oil prices. And for those businesses, they're probably experiencing some challenges.

Sabri Benishaw (3:32)

AI investment, though, does not seem to care about any of that for now. In New York, I'm Serby Benishur for Marketplace.

Kai Ryssdal (3:40)

It is a truism, by the way, of business journalism that no sooner do you assign a story in the morning news meeting about this stock index or that stock index being at record highs, than traders on Wall Street decide to ruin your day. All three major indices took a hit on this Wednesday. Bond yields, though, went up, which makes the story on the yield curve that's coming up in a little bit all the more topical. We will have the details when we do the numbers.

Just to be clear here, I'm not totally giving up on that. The stock market is not the economy thing. Call it a, I don't know, temporary hiatus or something. Anyway, all market eyes will turn to corporate earnings season next week, starting with big banks and some consumer goods companies. Marketplace's Kristin Schwab has the preview.

Kristin Schwab (4:43)

The thing about a good second quarter is that it ups the ante for quarters three and four.

Rob Hayworth (4:48)

And in particular, that's led to higher and higher expectations for 2026 overall.

Kristin Schwab (4:54)

Rob Hayworth is Senior Investment Strategist at US Bank. He says Q2 had some splashy events, like the IPO of SpaceX.