U.S. stocks have avoided a sharp pullback even as oil prices have risen about 30% this month and the 10-year Treasury yield has climbed roughly 40 basis points, briefly moving above 5%. Market strategists say the S&P 500's lack of movement does not mean support has disappeared: gains in healthcare, energy and financial stocks are helping offset weakness in artificial intelligence-related shares.
As of September 21, the S&P 500 was hovering around 6,720, broadly in line with levels reached in June. The market has remained stable despite higher financing costs, persistent inflation pressure, uncertainty over the outlook for AI spending and geopolitical conflict. That suggests investors have not broadly withdrawn from equities, although they are becoming more cautious about chasing the market higher.
Oil Rises as the 10-Year Yield Tops 5%
Moves in commodity and bond markets this month have created a difficult backdrop for equities. Oil has gained about 30%, while the 10-year Treasury yield has increased by roughly 40 basis points. After the Federal Reserve raised rates in September, the 10-year yield moved above 5%. Fed Chair Kevin Warsh has since continued to warn that inflation could remain elevated for an extended period.
Normally, higher energy costs and a rising risk-free rate put pressure on both corporate earnings expectations and equity valuations. Yet the S&P 500 has barely changed. Amy Raskin, chief investment officer at Chevy Chase Trust, said market momentum has slowed noticeably and that stocks could remain range-bound until uncertainty over AI investment, Federal Reserve policy and geopolitical conflict eases.
In her view, the index's stability looks more like a supported pause than a return to calm. Current price action suggests investors are still waiting for clearer signals from corporate earnings and interest rates.
Healthcare, Energy and Financials Take the Lead
Jim Lebenthal, a partner at Cerity Partners, said the index's flat headline performance masks a more significant shift in market leadership. As AI momentum stocks have cooled, healthcare, energy and financial companies have absorbed some of the demand. He described the broadening of the advance as a healthier market pattern.
The rotation has also reduced the S&P 500's dependence on a small group of large technology companies. If AI-related stocks continue to retreat, the ability of other industries to deliver earnings and attract capital will be an important test of the market's stability.
AI Still Drives Nearly Half of S&P Earnings Growth
Ben Snider, a Goldman Sachs equity strategist, said AI investment has contributed nearly half of the S&P 500's earnings growth this year, but that contribution is expected to weaken in 2027. Jason Snipe noted that companies posted 52% earnings growth in the previous quarter, while guidance for the current quarter is about 28%, pointing to a clear slowdown in the pace of expansion.
Snipe estimates that AI infrastructure spending will reach $900 billion this year and rise to $1.6 trillion next year. Such large capital commitments have supported expectations for chipmakers, data-center operators and related infrastructure companies, helping explain why the AI theme remains central to market valuations.
However, rising spending does not automatically ensure that earnings growth will keep pace. As investors assess the time required for AI investments to generate returns, the focus may shift from the size of capital commitments to companies' delivery of earnings, capital-spending efficiency and cash flow.
Higher Bond Yields Draw Institutional Allocations
Rob Sechan, chief executive of NewEdge Wealth, said the firm is increasing its bond allocation as yields return to higher levels, using fixed income to offset uncertainty in equities. He said institutions have recently been buying bonds with unusual intensity, reflecting the renewed appeal of fixed-income assets after the rise in yields.
The central question is no longer whether sector rotation can occur, but whether healthcare, energy and financial stocks can continue to support the index as AI-driven earnings growth slows. Strategists have been adjusting portfolios around that risk. Whether the market can remain as stable after AI's earnings contribution weakens next year will depend on the actual path of corporate profits, interest rates and inflation data.