AI drives U.S. stock resilience amid rising bond yields

The U.S. economy is experiencing a disconnect between a turbulent bond market and a resilient stock market driven largely by artificial intelligence. While 10-year Treasury yields have reached levels not seen since 2002, technology stocks have seen significant gains. The iShares U.S. Technology ETF has risen 33.7% this year, significantly outperforming broader indices that exclude the tech sector.

Moody’s Analytics estimates that AI contributed approximately 0.6 to 0.7 percentage points to the U.S. economy’s 2.3% annualized GDP growth in the second quarter, accounting for nearly a third of the expansion. However, some analysts warn of a potential bubble, with Capital Economics suggesting the AI-driven boom could face a correction before the end of 2025.

Simultaneously, rising long-term bond yields are signaling concerns regarding inflation control. Despite a weaker-than-expected jobs report and favorable PCE inflation data, 30-year and 10-year yields have continued to climb, suggesting a potential revolt in the bond market against current Federal Reserve policy.