The stock market gap between AI and everything else is growing

Markets giveth and markets taketh away. Wednesday was a little more on the taketh side, but Tuesday the S&P 500 hit another record high. In fact, it’s had 27 of those this year. Artificial intelligence and tech have driven that growth. But what about everything else?

Let’s take out Nvidia, Microsoft, Amazon, and their ilk— we know they’re doing great; happy for them. How is everyone else?

“Not so great,” according to Matt Orton, chief market strategist at Raymond James Investment Management.

When the S&P 500 hit its latest record high Oct. 6, only 24 stocks hit highs for the year. Twenty-four out of 500.

“There’s a significant bifurcation between everything that’s tech and artificial intelligence versus everything else in the market,” Orton said.

It wasn’t this stark even a few months ago.

“All the good performance was weighted to the bottom companies, not to the [Magnificent] Seven, not to the AI names, but to these other guys who were kind of catching up,” said Matthew Paniati, a senior research analyst at Capital Advisors Group.

And then some things changed: Federal Reserve Chairman Kevin Warsh gave a big press conference in August in which he strongly suggested interest rates were probably going up. Once that happened, Paniati said non-tech companies started to struggle.

Interest rates, mortgage rates, bond yields, and the price of diesel all rose. For normal non-tech companies living down here on earth, these are all bad things.

“They’re businesses that are tied to, say, the housing market. [And] with mortgage rates at now more elevated levels, it’s not surprising that we’ve seen investors rotate out of that area,” said David Lefkowitz, head of U.S. equities at UBS.

Homebuilder Lennar is down 27% so far this year, Doordash is down 13%, and Tyson Foods is down 11%.

“There are parts of the stock market that are correlated to interest rates and to oil prices, and for those businesses that are dependent on them, they’re probably experiencing some challenges right now,” Lefkowitz said.

AI investment does not seem to care about any of that — for now.