AI fatigue has hit the market. The S&P 500 peaked on June 2 and fell 3.4% through June 26. The equal-weight index is up 1.5% over the same stretch. Our view is this is a rotation, not a collapse.
The Magnificent 7 (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla) tells the harder story. Mag 7 is down 11% in June and off 5% YTD. Software stocks (IGV) are worse, down 18% in June and 17% YTD. Meanwhile, the other 493 stocks of the S&P 500 Index are flat in June and up 13% YTD. The leaders have become the laggards.
We believe the culprit is AI Fatigue. Investors are questioning whether hyperscalers’ massive infrastructure spend will ever pay off. Token prices are falling. Political opposition to data centers is growing ahead of the midterm elections. Chinese competitors keep arriving with cheaper, open-source models. Budgets built around agentic AI are blowing up. Creative destruction is no longer theoretical.
Semiconductors are the tell. Semis were down 8% on June 23. When the market’s leading industry falls this hard, it’s disconcerting, but historically, not fatal. In 10 prior instances of a similar single-session swoon, the S&P 500 was higher one year out in every case (source: 3Fourteen Research).
The current pullback may be a buying opportunity. Breadth is strong. The VIX is contained. The S&P sits well above its 200-day moving average. EPS growth is forecast at 20% or more in 2026 and 15% or more in 2027.
Watch the monetary policy announcements from the Fed and the Bank of Japan. That’s the real risk, in our view.
All data is sourced from Bloomberg unless noted otherwise. Thank you to 3Fourteen Research for granting permission to republish the chart below.
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