The S&P 500 broke below a key support level yesterday, the momentum is weak, a signal that the trend may have turned down earlier than anticipated. The catalyst is AI disruption fears and accelerating economic growth. Tech and software stocks saw pressure, with investors weighing long-term competitive threats from AI. This has contributed to choppy action and rotation away from some prior leaders.
The economy is expected to grow stronger (AI productivity), in a strong economy, businesses and households see better real-world investment opportunities (e.g., expanding factories, hiring, consumer spending, or higher-yielding projects). This draws money out of financial assets (stocks, bonds) toward productive uses in the real economy. Liquidity evaporates. When growth accelerates, it often pushes inflation higher or risks overheating. Central banks raise interest rates to cool things down and prevent excessive inflation. This is a negative for the stock market. Traders await the release of the FOMC minutes (expected at 7pm), for clues on interest rate thinking and policy path.