The U.S. economy and the U.S. stock market are starting to go their own ways.<\/p>\n
An eventful June featuring the launch of the record-busting SpaceX (SPCX-Q<\/a>) IPO and Federal Reserve chief Kevin Warsh\u2019s first meeting has been full of contradictions.<\/p>\n U.S. economic data has been solid, led by continued job gains and strong consumer spending, while sentiment is ticking up. Yet the Nasdaq and S&P 500 are down for the month and the once-unstoppable Magnificent Seven technology stocks are off more than 10 per cent by one measure. Treasury bonds rallied, sending yields lower even after inflation exceeded 4 per cent last week for the first time in three years.<\/p>\n \u201cThe one thing that sticks out to me is that through a period of higher energy prices, consumers have remained resilient in their spending in non-energy goods and services,\u201d said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. \u201cSo that kind of combination strongly suggests a level of economic stability, resilience and strength over and above what we intuitively expected heading into the year. And so that creates a little bit of upside risk\u201d for U.S. growth estimates.<\/p>\n Investors are at a crossroads as rising real, inflation-adjusted interest rates ripple through markets driven by the epic AI investment boom. Warsh\u2019s hawkish turn has fueled a surge in bets that the central bank will raise interest rates. Many analysts doubt he will actually do so, as tightening financial conditions already have sent gold and bitcoin down sharply alongside Microsoft (MSFT-Q<\/a>) and Meta (META-Q<\/a>).<\/p>\n Meanwhile, Wall Street is selling new shares and debt at a breakneck pace. This is partly to finance further AI spending whose proponents deride any bubble talk as blasphemy, yet it also reflects resilient investor demand.<\/p>\n The tension between a solid if uneven economy and a go-go market driven mostly by one sector has often been decided in favor of markets whose multiples seem perpetually to be near all-time highs. But that trend might not hold if the age of higher real borrowing costs is here.<\/p>\n The collapse this month of war fears and the decline of oil prices return markets to a \u201cfriendly fundamental\/cyclical backdrop but one that is reflected in high valuations,\u201d said Goldman Sachs analyst Kamakshya Trivedi. \u201cThat tension is most acute in the AI space, which is now also the primary source of volatility in equity markets.\u201d<\/p>\n Much of that volatility is being driven by investors jumping off one momentum trade into another. Since the markets\u2019 war scare crested late in March, the semiconductor index has gone nearly parabolic, putting the index up 87 per cent for the year. Micron (MU-Q<\/a>) has quadrupled while Intel (INTC-Q<\/a>) and Marvell Technology (MRVL-Q<\/a>) tripled in 2026.<\/p>\n Conversely, the Mag 7 group of tech giants led by Nvidia (NVDA-Q<\/a>), Apple (AAPL-Q<\/a>) and Alphabet (GOOGL-Q<\/a>) is down for the year after accounting in 2025 for around 40 per cent of S&P 500 gains, reflecting price appreciation and dividends.<\/p>\n