US markets seem to be hitting a wall. This is due to a growing concern as the US economy continues to slow, and questions around artificial intelligence profitability have yet to be answered. This has been mainly in the US, but when the US market sneezes, the world catches a cold.

Topics

US Markets Stalling

US Economy Slowing

Artificial Intelligence Questions

Iran War (added)

Markets Stalling

The S&P 500 (while very close to all-time highs) has had a flat performance since the end of October 2025. That is approximately 4 months of no real movement, with a lot of choppiness up and down. The worrisome part is that during this time, the Magnificent 7 (Alphabet, Amazon, Apple, Microsoft, Nvidia, Tesla, and Meta) have fallen about 10%. This is a bit of a concern because these 7 companies have represented the majority of the performance of the S&P 500 over the past 5 years. This underperformance has definitely caused a drag on the S&P 500’s overall performance over the past 4 months, and further struggles may cause more strain on the overall index. This underperformance is directly related to two things: questions around artificial intelligence/data centres and a weakening US economy.

US Economy Slowing

The US economy continues to face issues that do not seem to be going away. The employment data continues to come in weak, with total employment growth for 2025 being revised down to only an additional 181,000 jobs for the entire year. This comes in around 15,000 per month, when it was previously reported that this growth was 49,000 monthly. These are very poor numbers

for the United States, which also saw Q4 GDP drop to an annualized 1.4%. To make matters worse, core producer prices (wholesale prices, excluding food and energy) saw a jump of 0.8% month over month and a jump of 3.6% year over year. This may be an indication that inflation is not under control and they are moving further away from their target of 2% (tradingeconomics).

This puts the US in a very difficult spot, where employment is slowing to a halt, and its inflation may be increasing. If they were to cut rates to stimulate the economy and jobs, this may cause a more rapid increase in inflation. If they cannot spur growth and inflation increases, they could get stuck in stagflation. Prolonged stagflation has not been around since the 1970s and is detrimental to any economy. This is when inflation remains high, and economic growth remains very low. In the 70s the only end solution was to rapidly raise rates to combat inflation; this scenario resulted in the 1970s being a “lost decade” for the stock market. During that time, the S&P 500’s The total return from 1970 to 1979 was 17.2% or just over 1% a year (statmuse).

Artificial Intelligence Questions

The time of artificial intelligence is upon us; every day, more people are using it, and those who were using it are using it more. But this success does not necessarily translate into market success, they only care about making money. There are a few topics that are causing concern in the market right now surrounding artificial intelligence.

1. Will artificial intelligence companies be profitable and no longer require funding from other companies?

2. Can the data centre demand continue at this pace?

3. How much disruption will artificial intelligence cause?

These concerns are starting to weigh on the performance of the markets, which have been increasing due to the idea of a productivity boom from AI.

The question of profitability has always been there, but now investors are starting to get impatient. The high spending on artificial intelligence and its infrastructure is great, but investors would like to see a return on their capital. While there are companies doing well, not all companies will be able to turn their business plan into actual profitable earnings. This is where some companies will fail, and some will succeed. Investors will flock to the winners and abandon the losers.

The data centre demand question is getting complex. There is an obvious demand for data centres currently, but the future demand is now in question due to many factors. One question goes back to the success and failure of AI companies; at the end of the day, some will fail, and not all data centre compute space will be required. Another question is bottlenecks, will there be constraints on building data centres? This could be anything from energy sources, regulation, or even funding. The current energy infrastructure may not be able to sustain new data centre projects, and will regulation allow for this rapid increase in energy infrastructure? Traditional bank funding has not been used for data centres and this funding has primarily relied on secondary private markets to get loans. The question of whether there will be enough funding is starting to come up. The last question is really a growing topic of what disruptions artificial intelligence will cause. This is the reality of this rapidly growing technology. Companies are going to be made obsolete, and people will lose jobs. This last part is currently causing a lot of disruption as investors have been selling companies that they believe AI could replace. With artificial intelligence progressing, the focus is now shifting away from “everything will benefit from AI” to the reality. The market stalling is partly a reaction to the fact that not everything will benefit from AI; there will be disruption. The AI non-performers and disrupted companies are starting to get sold, and that is holding back the market. We are still very early in the AI journey, and this does show there will be bumps along the way.

Iran War
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We had to add a section about the Iran War that began after this was written. This was a very likely scenario and was always a risk to the market. It is important that no matter how bad war is, the market’s reaction to war would be regarding the financial impact to a company's earnings. In this case the threat to a war in Iran, is the increase in the price of oil. This would be inflationary and potentially cause a long term rise in interest rates. A long drawn out war could cause a similar scenario in 1973 when oil peaked due to OPEC imposing an embargo. This is similar because we are already in a scenario similar to the 1970s with higher inflation and lower growth, this would make the two time periods rhyme even further.
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Summary

The market has been flat for about 4 months due to many investor concerns that could get better or worse from here. The US economy is facing macro issues of employment and inflation that will not go away quickly, and the market is starting to dig into the reality that with any new efficiency, there will be sectors and jobs eliminated. We are in a period of time that has not been seen in decades. Globally and politically, things are changing rapidly. Globally, prolonged inflation like this has not happened since the 80s. The last time we saw a technological leap like AI was the internet, which was 25-30 years ago. The last time we saw gold rise like this was 20 years ago. The next 10 years will not be like the last 10 years.

Justin, Konrad, and Merriel

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Source: Magnificent 7 Earnings Growth -
https://insight.factset.com/magnificent-7-companies-reported-earnings-growth-above-25-for-
q4#:~:text=As%20a%20result%2C%20the%20%E2%80%9CMagnificent,companies%20for%20the%20third%20quarter.

Source: Economic Data - https://tradingeconomics.com/united-states/calendar
Source: 1970s Stagflation - https://www.statmuse.com/money/ask/sandp-500-jan-1-1970-to-dec-31-1979

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