In his State of the Union address last night, Donald Trump boomed that “the Dow Jones broke 50,000 four years ahead of schedule.” He then went further, adding that “the S&P hit 7,000 where it wasn’t supposed to do so for many years.”

The Dow 50,000 benchmark is noteworthy. It is an incredibly shaky hook on which to hang the Trump administration’s achievements and, at the moment, those figures point to concerns within the American stock market. In particular, there may be a significant adjustment taking place around AI companies.

At the time of writing, both the Dow and the S&P 500 are trading below their respective levels. What’s more, on current trends, it may take a while for them to break and hold above those levels again. Since late October, the US stock market has fluctuated within a relatively narrow range, with no significant rises or dips. And there’s been considerable churn in the market in recent weeks, with sharp price falls for some companies.

After years of rip-roaring growth when the US surpassed all other markets, suddenly things have slowed down. As the US market plateaus, the rest of the world has begun to race forward, up an average of 9% since the start of the year. Markets are moved by stories, and there are two competing narratives explaining recent changes and driving new movements.

The first narrative is that the AI cull has begun. Investors are starting to separate AI winners and losers, punishing the latter with a great rotation towards the former. This includes software firms whose products could be rendered obsolete by AI. If individual consumers can now vibe-code their own bespoke accounting or word-processing software, why bother with the companies offering those services? The answer is to dump them and buy the shares of the companies that will win the AI race regardless, such as chipmakers Nvidia and AMD.

This story is being told largely by bloggers, Substackers, and Silicon Valley op-ed writers, and then taken up eagerly by jittery traders wanting an excuse to sell. The tone of their message presents a curious blend of the euphoric and the apocalyptic. AI could create great possibilities, but also produce economic implosion or civilisational collapse.

On the other side, New York brokerages are telling a different story, more infused with Wall Street’s hard-headedness than the sci-fi bent of Silicon Valley. As they begin to doubt the story of AI transforming the world, they’re advising clients to look for opportunities elsewhere. As UBS recently put it, the “hyperscalers” behind the massive expansion of data centres may have overreached. Unable to generate returns to justify their spending, they may soon have to pull in their horns. In other words, if there is a great rotation, it may not be out of stocks hit by AI but out of the US altogether. That might explain why some big hyperscalers, such as Meta, Alphabet and Oracle, have all seen their share prices flounder this year.

Time will reveal which of these narratives is correct. Meanwhile, operating in the background are signs that investors in both private equity and crypto are facing liquidity issues, given the underperformance of these sectors. That may be forcing them to liquidate other holdings to cover their debts, which could be acting as a brake on the market. If markets fail to break out of their range and resume rising, Trump will regret celebrating Dow 50,000.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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