U.S. markets rise on AI optimism as economic growth stays muted

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U.S. markets rise on AI optimism

Highlights

The S&P 500 rises nearly 10% and the Dow Jones almost 9% in H1 2026, marking strongest first-half since 2021 driven by AI-led gains.
Technology, including Alphabet, Amazon, Meta and Tesla, now constitutes about 50% of U.S. market capitalization despite only 10–15% share of the broader economy.
Real U.S. GDP growth slows to about 1.9% in 2026, labor participation nears 50-year lows, and top 20% of households now account for nearly 60% of personal spending.

AI-driven gains reshape market performance

As reported by CNBC, the S&P 500 rises nearly 10% in the first half of 2026, while the Dow Jones Industrial Average gains almost 9%, marking its strongest first-half showing since 2021. Those advances build on earlier annual gains of 24% in 2023, 23% in 2024 and 16% in 2025, extending one of the market’s strongest multi-year runs in decades.

Joe Seydl, senior markets economist at J.P. Morgan Private Bank, says investors often assume stocks and the economy should move together, but the two reflect different forces. Stocks are trading on expectations for future corporate earnings, and economists say investor enthusiasm is now heavily concentrated in technology and especially AI-related businesses.

Mark Zandi, chief economist at Moody’s, says AI companies’ shares have gone “skyward” and have lifted the broader market. Seydl says technology represents about 35% of the stock market, and about 50% when including companies such as Alphabet, Amazon, Meta and Tesla, even though technology accounts for only about 10% to 15% of the wider U.S. economy.

Soft growth raises risks for the wider economy

By contrast, real U.S. gross domestic product slows from about 3.3% in 2023 to roughly 1.9% so far in 2026, according to Seydl. Zandi describes growth near 2% as soft, saying the economy is still expanding but not advancing quickly, while Federal Reserve officials in June estimate 2026 growth at 2.2% and broader economist forecasts center around 2%.

The labor market also shows signs of strain, Zandi says, with labor force participation near its lowest level in about 50 years outside the Covid-19 period, hiring at its weakest pace in more than a decade excluding the pandemic, and long-term unemployment rising steadily. Consumer sentiment falls to a record low in May amid inflation concerns, according to the University of Michigan’s Surveys of Consumers, and although it improves somewhat in June, it remains unfavorable.

Economists say consumer spending, which makes up about 70% of GDP, is increasingly supported by higher-income households. A Moody’s analysis published in June says households in the top 20%, earning about $200,000 or more, account for nearly 60% of personal spending, up from about half in the early 1990s, while inflation-adjusted spending by that group rises about 4% in the first quarter of 2026 and spending by the bottom 80% is unchanged.

Because wealthier households hold most stocks, a prolonged market setback could quickly weigh on spending through the wealth effect. Economists say that risk is especially important if investors lose confidence in the AI earnings story, while other pressures, including elevated inflation and the possibility of renewed conflict between the U.S. and Iran, add to the economy’s fragility.

In our earlier article on Tesla shares’ volatility, we noted that Wall Street analysts were split on whether the stock’s valuation already reflects overly optimistic expectations. The piece highlighted how Tesla’s long-term AI ambitions—robotaxi and Optimus—are a key part of the bull case, while near-term uncertainty and upcoming earnings guidance were framed as potential catalysts for the next move in TSLA.

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