Bond Market Overtakes AI Optimism as Key Driver of Stocks

According to CNBC, a key volatility measure for U.S. tech stocks is reversing, suggesting the bond market may now be driving equities more than AI enthusiasm. The spread between big-tech volatility and the broader market, often measured by the gap between the Cboe's VIXEQ and VIX indexes, had widened to record highs this summer but is now narrowing as traders sell broad index exposure and VIX rises to its highest level relative to VIXEQ since April. The move comes alongside a sell-off in U.S. Treasury bonds and the 10-year yield nearing a three-year high of 5%. Scott Nations, president at Nations Indexes, said single-name implied volatility surged over the summer as traders focused on AI-related stock stories, but that trend is now reversing as inflation, higher oil prices, the Federal Reserve's Sept. 16 meeting and other political and geopolitical concerns take center stage. Crude oil futures are back above $100 for the first time since May, energy stocks in the S&P 500 hit fresh highs Thursday, and the State Street Energy Select Sector SPDR ETF (XLE) has extended its lead over technology stocks as the year's best-performing sector, up 43%.