President Donald Trump sees the stock market as a referendum on his performance, and by many accounts the numbers are high. But don’t fool yourself into thinking the market is sailing on a wave of glory. This thing is “lousy for most,” says Bloomberg Analyst Jonathan Levin.
The market is largely getting buoyed by one industry — and most Americans are not making money on it. Worse, they have plenty to lose if it all goes south.
“Although the S&P 500 Index closed at an all-time high this week, it did so on the strength of a handful of companies focused on the booming artificial intelligence sector, papering over signs of growing vulnerabilities in the economy and financial markets,” wrote Levin on Friday. “With the midterm elections less than a month away, what Trump sees as an asset for Republicans may in fact be a liability.
The economy, he warned, is actually “reeling from inflation that remains stubbornly high and unchecked fiscal budget deficits” while average hourly earnings adjusted for inflation have been losing ground for five months.
“A Federal Reserve Bank of New York report this week showed Americans expect their earnings growth to lag even further behind consumer inflation in the next 12 months, due in part to the surge in gasoline and diesel prices caused by the US-Israel war with Iran,” Levin explained. “That’s in addition to efforts underway by the White House to find workarounds to reinstate the inflationary tariffs deemed illegal by the Supreme Court.”
With inflation devouring meager pay raises, Levin said it’s not a surprise that Americans are spending less, which is putting a hit on the stocks of companies in the “consumer, travel, transportation, real estate and financial sectors.”
But the purported strength of the AI sector, Meta Platforms Inc. and Microsoft Corp. and chipmaker Nvidia Corp. are overshadowing the poor performance infecting much of the stock market.
These few the outperformers could potentially sustain their momentum — at least for a while, said Levin, and the rest of the slumping market could catch up, but Levin cites billionaire Michael Novogratz saying on Wednesday that AI is the “biggest bubble of our lifetime.”
And what do bubbles inevitably do? Bridgewater hedge fund founder Ray Dalio said this week that AI is a “classic bubble” that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash.
“It’s impossible to know when exactly a bubble will burst, but what is certain is that the market will crumble, and probably spectacularly, if investor sentiment turns against AI,” said Levin. But the losers won’t just be people making concentrated bets on AI stocks. It will also be the 401k investors and everyday Americans who suffered after the housing crash concluded the Bush years.
“As of 2025, around $23 trillion in assets were indexed or benchmarked to the S&P,” said Levin. “Also leveraged to the index’s fragile value is wealth-driven consumption and, ultimately, millions of jobs.”