The promise of artificial intelligence remains a significant topic for the global economy. Many observers expect the technology to reshape business operations and generate productivity gains similar to the internet or the personal computer. However, a report from Moody’s suggests that investors should prepare for a potential disconnect between corporate success and stock market performance. While companies might see real value from these advancements, current valuations already factor in aggressive growth expectations that may not materialize for shareholders.
Mark Zandi and his team indicate that the base case for the coming years involves muted returns for the S&P 500. After a decade of high growth, Moody’s projects a cooling period with average annual gains likely dropping to 5% through 2035. This outlook stands in contrast to the rapid price appreciation seen over the last ten years. High levels of corporate debt tied to technical infrastructure mirror patterns observed during the dot-com era, raising questions about sustainability if expected returns remain delayed.
Market history shows that when investors ignore skeptics and crowd into a single narrative, the risk of a correction increases. If the current trend persists, consumer spending could face pressure should equity prices decline. While the underlying technology holds the potential to change how businesses function, the financial markets may struggle to sustain the high valuations established during the initial phase of development. Analysts suggest that even if corporations meet their performance targets, the impact on stock prices might not satisfy current expectations.