Broadening markets and the AI question: Insights from Jurrien Timmer - August 10, 2026

A market with more than one driver

One of the most notable features of today's market is the breadth of participation. Approximately 74% of stocks in the S&P 500 are trading above their 200-day moving average, while both the cap-weighted and equal-weighted indexes have reached new highs. That broad participation has persisted even as many AI-related stocks have struggled, with the AI basket declining roughly 15% to 20% from its early June peak before recovering some ground. In Jurrien's view, that points to a market with opportunities extending beyond the largest technology names and one that is not dependent on a narrow group of leaders.

Questions emerging within the AI ecosystem

While AI continues to attract significant investment, some developments suggest investors may need to look more closely at how value will ultimately be created. Data tracking what users are willing to pay per token suggests lower-cost open-weight AI models, many of them from China, are increasingly becoming the default choice for developers who do not require enterprise-grade solutions. Much like the internet era, there is a possibility that AI models themselves could become commoditized over time, even as the underlying infrastructure, including data centers, power and semiconductors, remains critical. As a result, questions remain about how companies developing AI models will monetize their intellectual property over the long term.

Earnings continue to support equities

Despite those questions, earnings remain a key reason for maintaining a constructive view on equities. The S&P 500's next 12-month earnings estimate has increased by roughly $100 per share over the past year, while the rate of earnings growth has risen from approximately 7% to 35% and continues to move higher. Rising earnings combined with an accelerating rate of growth represent a powerful form of market momentum. Although comparisons to the late-1990s technology boom are understandable, he noted there are likely more differences than similarities, pointing to current valuations and strong market breadth as important distinctions.

Will semiconductors remain different this time?

The durability of the AI theme depends in part on the assumption that semiconductors are no longer a cyclical industry. While the current AI-driven buildout has produced exceptional earnings growth, he cautioned against assuming historical patterns no longer apply. Semiconductor earnings have historically followed clear cycles, and with earnings in the sector having risen dramatically over the past year, he noted that investors may eventually begin looking for signs of peak earnings. Rather than attempting to predict exactly when that turning point may occur, he suggested broadening the search for opportunities beyond the most crowded parts of the AI trade.

The diversification opportunity

Looking beyond AI, diversification remains an important consideration. He pointed to analysis showing that stocks outside the AI theme have demonstrated relatively low correlation to the broader market, which may create diversification benefits when combined with AI-related exposures. He also highlighted financials as a sector that could benefit from AI-driven efficiencies over time, given the large amounts of data many institutions already possess. More broadly, he expressed a favourable view of Canadian equities, noting the strength of their fundamentals, as well as financials and energy among his preferred sectors.

Higher rates and the bond market

While equities have remained resilient, developments in fixed income continue to warrant attention. The bond market has been experiencing a bear steepening trend, with longer-term yields rising while short-term rates remain anchored. Real yields have increased significantly and are now at their highest level since 2007. One potential explanation is what he described as a possible "reverse crowding-out" effect, where substantial AI-related borrowing may be contributing to higher yields and making it more difficult for governments to borrow at lower rates, though he characterized this as an open question rather than a firm conclusion.

Taking a fresh look at inflation expectations

The spread between nominal Treasury yields and Treasury Inflation-Protected Securities (TIPS) has remained relatively stable near 2.25%, even while inflation has been running above 3%. Based on his research to date, he noted that he has not found strong evidence that break-even rates provide meaningful predictive value for future inflation outcomes, a finding that could be significant given the attention many investors and policymakers pay to break-even inflation rates as an indicator of future inflation expectations.

Gold's role as a diversifier

Among potential diversification tools, gold continues to stand out. The metal has held above 4,000 and has recently regained momentum, which Jurrien suggested may be linked in part to renewed acceleration in global money supply growth, although he noted that several factors could be contributing. Regardless of the catalyst, he continues to view gold as one of his preferred diversifiers within the defensive portion of a portfolio.

Conclusion: Diversification remains key