Economy
AI panic and market volatility: Are the stock market’s big gains unsustainable?
Stock markets are experiencing intense bouts of volatility, sparking questions about whether the significant growth observed over the last four years can be maintained. Much of this anxiety is tied to concerns surrounding artificial intelligence.
U.S. stock markets have enjoyed an exceptional four-year run, providing a substantial lift to retirement accounts and individual investors. However, some wonder if this period is drawing to a close. Earlier this week, the tech-heavy NASDAQ index saw its most significant single-day decline in months. While the broader market managed to finish the week on relatively stable footing, the year has been marked by unusual volatility that has left investors uneasy and potentially signaling wider economic trouble. Rafael Nam joins us to discuss the situation.
I think many Americans are probably struggling to figure out what’s going on. Markets look strong one day, then it tanks the next. What is going on?
You know, Scott, by the numbers, the economy looks sturdy – right? – despite the fact that many people are struggling with inflation and affordability, and corporate profits have generally been pretty good. So all three major stock indexes are actually – you know, they have pretty decent gains for the year. But it’s also been a really strange 2026. We’ve seen some real rough patches because there’s been so much uncertainty. There’s the war with Iran, which is leading to a surge in energy prices. The Federal Reserve is raising interest rates, and concerns remain about AI. So you know how sometimes when things are going well for you, and you have this feeling in the back of your head that something bad might happen? This is how James McCann, a senior economist at investment firm Edward Jones, put it.
JAMES MCCANN: I think as we get further through a bull market, investors are always looking for signs that that momentum and growth and earning cycle might be getting long in the tooth or fading.
In other words, investors are worried that the other shoe will drop, especially when it comes to AI.
And why so much anxiety around AI?
MCCANN: You know, Scott, because for markets, there’s no more important section – right? – important sector – excuse me – right now than AI. You know those big gains in markets we’ve been talking about over the past four years? A lot of that was driven by AI companies like Nvidia. And, you know, the concern here is that how long can companies continue to raise massive amounts of money and grow, especially when rising interest rates make borrowing money even more expensive? And it’s not just about money being spent on developing AI. Those becoming a significant part of business in general. All kinds of companies now offer AI chatbots. Data centers are controversial, but building them contributes to the economy. This is McCann again.
MCCANN: The fear is that any hit in the AI sector or disappointment there probably, you know, might not just be contained there. It might spread more broadly and create, you know, wider distress across the economy and markets.
That is precisely why the performance of AI firms is so critical. For instance, when Meta announced on Thursday that it would need to secure additional funding for AI, the news didn’t just impact the company’s share price; it triggered a decline across the entire market.
What are investors supposed to do? How do you navigate a market like this?
So, Scott, when I called around about this, you know, I kept hearing the most time-tested advice for those people who may have a retirement fund or are investing in stock markets and are just trying to make a sense of this. The word is diversify. Just this week, a huge California pension fund called CalPERS told the Financial Times they were pivoting some of their <a t tie their fortunes to just one sector. And the second thing I was told – brace yourself because it could get bumpy.
