AI Rally and Volatility Define Stock Run Since Trump’s Return

(Bloomberg) — Donald Trump’s re-election was supposed to deliver a booming stock market. It’s done that, just not for the reasons prognosticators anticipated.

The S&P 500 Index has surged 18% since Trump’s Nov. 5 win, ending October on a six-month winning streak and at an all-time high. The run started on expectations an economic boom would follow Trump’s plan to slash taxes and regulations.

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While he has largely delivered the cuts, his attempts at a wholesale re-write of US trade policies, often in fits and starts, are the market narrative he’s most responsible for. Tariff threats and walkbacks have sent a measure of policy uncertainty to the highest since 1900, and equity volatility has episodically spiked, most notably in April when Trump unveiled the harshest levies in 90 years.

“This was one of the most dramatic explosions of market volatility we’ve really ever seen,” said Dean Curnutt, CEO and founder of Macro Risk Advisors LLC.

If not for another bout of artificial intelligence euphoria, the stock market’s advance would be far more muted. Big Tech accounts for a big chunk of the gains, while old-line industrial firms and sellers of consumer products have languished amid tariffs and a slowing economy.

A version of the S&P 500 that strips out market-cap bias is up just 5.2% in the year, underscoring the impact of Big Tech and AI. The median stock in the index has notched a gain of just 1.2%.

Aside from a January blip around China’s DeepSeek app, AI euphoria has minted Nvidia Corp. as the first $5 trillion company and pushed Apple Inc. and Alphabet Inc. past $4 trillion. The seven biggest tech companies account for more than half of the market’s advance.

“I feel like we’ve all jumped on the AI trade,” said Alonso Munoz, chief investment officer at Hamilton Capital Partners LLC, describing investors’ belief that the technology is in the early stages of “leapfrogging into more advancements,” and leaving other segments of the market behind. He sold off investments in more defensive sectors in April during the turmoil, to buy bigger stakes in AI-related firms, including Alphabet Inc.

While the AI rally tore ahead, policy-fomented volatility continued to flare, largely around tariff threats. Trump also sparked rallies and routs in individual companies and industries.

He resuscitated Intel Corp.’s shares by getting the company to give the US a 10% stake in return for what had been a grant. The US demanded an ownership slice of US Steel for a deal approval. It bought equity in small mining companies deemed vital to national security, lifting what had been a tiny sector.

His jawboning around Federal Reserve policy, and attempts to fire one official, also stoked volatility. For Curnutt, the repeated turbulence can start to take its toll on the market, like an edifice weakened by consistent rattling.

“My concern is markets are not anti-fragile. There’s not so much that you can throw at some of these markets where they can just tolerate the uncertainty,” Curnutt said.

Still, a 18% gain since the election is, by most measures, excellent. By several others, it’s lackluster. The prior 12-month period delivered a gain of 36%. US stocks rank just 54th globally in the past year, trailing Canada, Japan and Germany among others.

And stacked against the first year following a presidential election in the past eight decades, this one ranks just eighth — behind Joe Biden (first place), Barack Obama (fifth) and Bill Clinton (second), according to data from CFRA. Franklin Roosevelt’s final term ranks third, with Trump’s first stint seventh.

Consumer stocks in particular have struggled. To wit, Chipotle Mexcian Grill Inc. shares plunged last week and the company sounded alarms over a diner pullback. The staples sector has also fallen over the last year as tariffs are seen impacting margins. A similar challenge is playing out in the market’s worst-performing sector, materials, which is down 8% and struggling as they pay more for inputs for chemicals from global trading partners, especially China.

Nevertheless, the AI buoyancy has made it “impossible not to be in the US stock market,” Curnutt said, noting that its size, liquidity, rate of participation by all investor sizes and growth prospects have kept traders coming back despite risks and volatility.

And there are signs that Trump’s trade-fueled turbulence is starting to ease after his Asia trip netted accommodations from a host of countries. At the same time, worries about AI competition from China have waned since February and corporate earnings have continued to support high stock valuations.

“I, for one, feel more confident sitting here today than last year,” said Michael Dickson, head of research and product development at Horizon Investment LLC.

A year ago, Dickson said, investors didn’t know how quickly AI-infrastructure spending would ramp up, or which specific parts of the supply chain would benefit in the course of the cycle. Now, he said, investors see the potential for more upside which is keeping traders invested despite other risks.

“AI productivity is poised to continue to boost us from here, and we didn’t know a lot of this stuff last year,” he said.

Even the AI trade isn’t without risk, though, as bubble warnings abound. And it’s possible the so-far muted impact from tariffs becomes a problem for American consumers. Lower-end borrowers have started to struggle, and an uptick in inflation could keep the Fed from cutting interest rates as aggressively as investors hope.

“Policy does take a long time to feed through the US economy,” said Picton Mahoney’s Phipps.

At the same time, he said that investors currently face two-sided risks in the US market, of a correction given stock valuations, as well as missing out on another sharp rally from AI-related stocks. “There is a risk there is an acceleration in the broader US economy,” he said.

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