AI is losing its stranglehold on the U.S. stock market. Here's why

• The spread between tech volatility (VIXEQ) and broader market volatility (VIX) hit record highs this summer but is now reversing as traders sell broad equity exposure
• The 10-year Treasury yield is approaching a three-year high of 5 percent, with crude oil back above $100 and energy stocks up 43 percent year-to-date, now the best-performing sector
• Implied volatility in AI-related stocks like Micron and Palantir has collapsed significantly (from 112 to 58 and 122 to 56 respectively) as earnings season ends and bullish options flows slow

Summary: AI Losing Grip on U.S. Stock Market as Focus Shifts to Macro Factors

The dominance of AI stocks over U.S. equity market movements is waning as investors shift attention to macroeconomic factors, particularly bond yields and energy prices.

Key Market Indicators

A critical reversal is occurring in tech volatility metrics. The spread between the Cboe's VIXEQ (tech stocks) and VIX (broad market) indexes, which hit record highs this summer, is now reversing. VIX has jumped to its highest level since April relative to VIXEQ, indicating broader market concerns are overtaking AI-specific enthusiasm.

The 10-year Treasury yield is approaching 5%, near three-year highs, signaling that macroeconomic policy and bond market dynamics are becoming primary market drivers. Crude oil futures have surged above $100 per barrel for the first time since May.

Sector Performance Shift

Energy stocks now lead the S&P 500 as the best-performing sector year-to-date, up 43%, overtaking technology. Exxon Mobil was the only stock among 19 tracked by Nations Indexes' VolDex metric that didn't see volatility collapse on Thursday.

AI Stock Volatility Decline

Implied volatility in major AI-related stocks has dropped significantly:

• Micron: Fell from 112 pre-June earnings to 58
• Palantir: Declined from 122 to 56 despite gaining 30% since August earnings

Analysis

According to Scott Nations, president at Nations Indexes, traders have moved from discounting macro issues to refocusing on broader economic catalysts. The end of earnings season and slowing bullish options flows in popular tech names have contributed to reduced AI stock volatility. Kevin Davitt of Nasdaq confirmed that the "cross market/single stock to index volatility relationship has normalized," particularly in semiconductors.