By Randall W. Forsyth
Did Pam Bondi call a top in the stock market?
In testimony about Jeffrey Epstein this past Wednesday to the House Judiciary Committee, the attorney general surprisingly swerved out of her lane to cite the Dow Jones Industrial Average hitting the 50,000 mark. The presumed implication was that the nattering nabobs on the panel should get over the long-running Epstein scandal since stocks' highs are saying Americans never had it so good.
That may be so for the richest 10% of the population, which owns 93% of all American households' stockholdings, according to Federal Reserve data. But it's less relevant to the bottom 50%, which controls about 1%.
Stocks resumed their swoon the next day as concerns about the impact of artificial intelligence spread. After software stocks fell on fears that AI would render those firms' offerings obsolete, the tornado swept through other supposedly vulnerable sectors, notably financial services, commercial real estate, trucking, and logistics.
If the AG top-ticked this market, she had company among stock advisory services. Investors Intelligence's tally of opinions showed bulls topping bears by 40 percentage points, a reading in the 90(th) percentile of positivity, according to Jeff deGraaf, founder and chairman of Renaissance Macro Research. That elevated sentiment suggested at least some near-term caution, he wrote in a client note on Thursday morning. Traders should be patient, buying dips instead of chasing strength, he wrote.
The Dow surrendered the 50,000 mark, dropping 1.34% on Thursday, while the tech-heavy Nasdaq Composite declined more than 2%, as names seen as vulnerable to AI were summarily taken out. A signal attribute of the selloff was the stunningly sharp moves in single stocks far in excess of the widely watched indexes, especially in names seen vulnerable to AI. BTIG technical analyst Jonathan Krinsky pointed to CBRE Group, the commercial real estate firm, which tumbled 24% in just two days after hitting a record. The presumption is that offices would be emptied as AI displaces sentient beings.
What's different from past episodes of disruption is that AI doesn't target a particular industry, notes Nicholas Colas, co-founder of DataTrek Research. Markets know that AI works but wonder who survives because it works so well.
Among sectors, tech -- the epicenter of the AI upheaval -- has seen its price/earnings ratio capped at 23.8 times forward estimated earnings, only slightly above its 22.6-times five-year average, per FactSet data. "If tech cannot get an AI-driven valuation premium, one must wonder if any sector can earn its way into a better multiple in the next few years, " Colas writes.
Meanwhile, "no matter what AI does to the economy over the next one to two years, people will still need to eat and drive," he adds.
The selling spread beyond tech equities to other risky sectors, notably Bitcoin and crypto-related stocks, plus silver and gold. After the massive spikes in precious metals -- gold was up more than 23% on the year at its late-January peak, and silver was up 63% -- the winners on the long side can't be faulted for cashing in some chips. Alternatively, some of the selling might have been spurred by the need to meet margin or other cash calls.
Along with consumer-staples stocks, a big beneficiary of the volatility in equities was the investment-grade bond market. In Treasuries, the benchmark 10-year note yield dropped as low as 4.05% on Friday, down about 23 basis points from a couple of weeks earlier and the lowest level since late October, when it dipped under the 4% mark. (A basis point is a hundredth of a percentage point.) Demand also was strong for lengthier maturities, with a new 30-year bond seeing strong demand at Thursday's auction.
Whether the AI-driven swings in equities continue will be the key for the bond market in the week ahead, writes Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. Stocks also are driving bond buying in other ways. The continued advance in equities forced some institutional money managers to rebalance to maintain their stock-bond mix. Wells Fargo strategists see some of the biggest such readjustments in years.
The bullish bond backdrop was further bolstered by economic data, notably a smaller-than-expected rise of 0.2% in the consumer price index for January -- the smallest increase since July. That boosted the odds that the Fed would cut interest rates by more than the half a percentage point by year end.
Still, nit-pickers noticed that the benign CPI print was lowered by a sharp drop in used-car prices, which Deutsche Bank economists note offset broad-based firmness elsewhere. They also cautioned about disinflation in rents persisting. January's core personal consumption expenditures index -- the Fed's main inflation gauge -- could show a year-over-year increase of more than 3%, compared with the central bank's 2% target.
The delayed January jobs report showed stronger-than-expected payroll growth and a dip in the unemployment rate to 4.3%. With less worries about the labor market and inflation running above target for five straight years, the bank's economics team is sticking to its view that the Fed won't be able to cut rates until late 2026. Consensus estimates call for a June cut.
An underlying assumption in both the bond and stock markets has been that the Fed would resume cutting rates after Jerome Powell steps down when his term as chair ends in May and is replaced by Kevin Warsh, who has endorsed rate cuts. The chair has just one vote out of 12 on the Federal Open Market Committee. If the anticipated rate-cut scenario doesn't play out, and the AI hits keep on coming, the Dow 50,000 print may be the peak for a while.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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(END) Dow Jones Newswires
February 13, 2026 18:29 ET (23:29 GMT)
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