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Yardeni: Fed Influence Diminished, AI Fatigue Drives Tech Rotation
In a recent ET Now interview, Yardeni Research strategist Ed Yardeni argued that the Federal Reserve’s policy stance no longer dominates equity markets. He said investors have largely digested expectations of higher rates and are now turning their attention to corporate earnings, geopolitical stability, and the evolving role of artificial intelligence.
Yardeni described the Fed’s latest meeting as "very hawkish" and noted that inflation is easing, partly thanks to falling oil prices and other factors that have reduced price pressures. He believes the market is pricing in tightening over the next six to twelve months, but that the Fed’s influence is now "not a very relevant factor right now for the market." He added that earnings and the perceived end of the Middle‑East conflict are now the main drivers.
The strategist also highlighted a shift in the technology sector. He said recent weakness in semiconductor and tech stocks reflects what he calls "AI fatigue." According to Yardeni, investors are becoming more selective as the technology matures. He explained that while AI is a lasting technology, the sector has seen winners and losers, and the market is rotating away from the hype.
Regarding higher borrowing costs, Yardeni said the market has already adjusted to a higher‑for‑longer interest‑rate environment. He noted that a 10‑year U.S. Treasury yield of about 4.5 % is "where it should be" and that the bond market is properly allocating capital. He further said that Fed Chair Kevin Warsh’s comments suggest the Fed is listening to the bond market, which signals a healthy economy and moderate inflation.
On the labor market, Yardeni commented on the latest U.S. employment report, noting that the data contained several anomalies. He said the broader labor market remains balanced, with supply roughly equal to demand. Consequently, he believes the Fed should prioritize bringing inflation down to 2 % rather than focusing on employment.
Yardeni’s assessment indicates that while interest‑rate expectations remain important, investors are paying greater attention to earnings growth, leadership beyond technology, and the long‑term commercialization of AI. He suggested that a broadening market could replace the narrow AI‑driven rally that has dominated Wall Street over the past year.
In summary, Yardeni says the Fed’s hawkish stance and higher rates are now background factors. Corporate earnings, geopolitical developments, and a shift in technology sector sentiment are the primary forces shaping market direction. The market’s focus on fundamentals and the maturation of AI technology points to a potential transition from a technology‑centric rally to a more diversified equity landscape.
Yardeni described the Fed’s latest meeting as "very hawkish" and noted that inflation is easing, partly thanks to falling oil prices and other factors that have reduced price pressures. He believes the market is pricing in tightening over the next six to twelve months, but that the Fed’s influence is now "not a very relevant factor right now for the market." He added that earnings and the perceived end of the Middle‑East conflict are now the main drivers.
The strategist also highlighted a shift in the technology sector. He said recent weakness in semiconductor and tech stocks reflects what he calls "AI fatigue." According to Yardeni, investors are becoming more selective as the technology matures. He explained that while AI is a lasting technology, the sector has seen winners and losers, and the market is rotating away from the hype.
Regarding higher borrowing costs, Yardeni said the market has already adjusted to a higher‑for‑longer interest‑rate environment. He noted that a 10‑year U.S. Treasury yield of about 4.5 % is "where it should be" and that the bond market is properly allocating capital. He further said that Fed Chair Kevin Warsh’s comments suggest the Fed is listening to the bond market, which signals a healthy economy and moderate inflation.
On the labor market, Yardeni commented on the latest U.S. employment report, noting that the data contained several anomalies. He said the broader labor market remains balanced, with supply roughly equal to demand. Consequently, he believes the Fed should prioritize bringing inflation down to 2 % rather than focusing on employment.
Yardeni’s assessment indicates that while interest‑rate expectations remain important, investors are paying greater attention to earnings growth, leadership beyond technology, and the long‑term commercialization of AI. He suggested that a broadening market could replace the narrow AI‑driven rally that has dominated Wall Street over the past year.
In summary, Yardeni says the Fed’s hawkish stance and higher rates are now background factors. Corporate earnings, geopolitical developments, and a shift in technology sector sentiment are the primary forces shaping market direction. The market’s focus on fundamentals and the maturation of AI technology points to a potential transition from a technology‑centric rally to a more diversified equity landscape.
