Markets Brief: The AI Rally Is Also Lifting Dividend Stocks

With earnings season largely wrapped up, barring a resolution to the Strait of Hormuz stalemate, attention will be turning back to the economy this week with Friday’s release of the May jobs report. The other big event is the expected start of the SpaceX IPO roadshow. In addition to our existing coverage of what SpaceX’s IPO filing has revealed, we’ll have more coverage of what this massive stock offering will mean across investor portfolios, plus a continued look at the company itself.

This week’s Markets Brief looks at how the artificial intelligence buildout is lifting dividend stocks, why Fidelity’s director of quantitative market strategy thinks the stock market’s rally shouldn’t be a surprise amid rising bond yields, and how muni bond valuations look.

Dividend Stocks Ride the AI Buildout

Technology stocks are generally not fertile ground for dividend investors, since the management of such firms typically prioritizes reinvesting in their businesses over returning capital to shareholders. However, plenty of tech companies pay dividends, often at fairly low levels. A tenth of the Morningstar US High Dividend Yield Index is made of tech stocks—a representation not far behind healthcare and ahead of energy. In fact, within the High Dividend Yield Index’s 8.6% return so far this year, tech is the top contributor.

As has been the case across the broader market, names important to the AI infrastructure buildout are front and center. The High Dividend Yield Index is led by semiconductor stock Lam Research, its top contributor for 2026 when accounting for index weight. All five of the best-performing stocks in the index benefit from the AI boom in one way or another. Even Dell Technologies DELL, usually known as a PC maker, is booming thanks to its server business.

It’s been a very good year for investors who own these stocks, but their Morningstar Ratings show that our analysts think they now look expensive. The other catch for dividend investors is that many of these names offer paltry income, with dividend yields (payouts divided by stock price) barely cracking 1%.

Screening for stocks with dividend yields above the Morningstar US Market Index’s 1.22%, winners include petrochemical company LyondellBasell LYB and offshore driller Noble NE. Those stocks have seen shares jump in the wake of the energy price shock resulting from the Iran war. But semiconductor company Texas Instruments TXN performs best across dividend payers in the US market.

Could Higher Bond Yields Be a Good Sign for Stocks?

In recent weeks, notable trends included a rising stock market, even in the face of rising bond yields, plus growing expectations of Federal Reserve rate hikes. The yield on the US Treasury 10-year note finished the week at 4.45%, having started 2026 at 4.19% and trading below 4.00% before the start of the Iran war.

Rising bond yields have largely been pinned on inflation concerns in the wake of the war-driven oil price shock. Higher yields can be negative for stocks because they tend to slow the economy and reduce the value of future earnings on tech and other growth stocks.

So why are stock investors seemingly shrugging off the rise in bond yields? Fidelity’s Denise Chisholm offers a different take: “There is this knee-jerk reaction as to what we know the cause of that rate rise is … the cause is clearly higher oil prices, which will lead to seepage into overall inflation, core inflation, and then make a more hawkish Fed.” However, “there could be another reason rates are going up: growth.”

Part of the issue, she says, is that the conventional wisdom is that higher rates are automatically bad news for stocks. But looking at the data—even for technology stocks—the story isn’t that straightforward. From a portfolio standpoint, the data shows that higher rates can generate higher alpha for tech stocks (meaning more opportunities for a stock picker to outperform) than lower rates.

But more broadly, “if there is growth, and rates are a reflection of that growth, they’re just a confirming signal. They don’t get in the way of technology leadership, and on average, they certainly don’t get in the way of the market,” Chisholm says.

Are Muni Bonds Attractive?

For bond investors, that rise in yields can be both a positive and a negative. On the plus side, higher levels of income cushion against declines. But higher yields also come with falling prices and potential losses in bond mutual funds.

When it comes to tax-exempt bonds, Gregory Gizzi, head of fixed income and municipal bonds at Nomura Asset Management, says the current yield environment is more or less attractive depending on maturity. Longer-term munis (those with maturities of 20 years and more) are especially attractive, according to Gizzi, a 42-year market veteran and a co-manager of the $2.9 billion Nomura National High-Yield Municipal Bond Fund DVHIX.

Gizzi looks across municipal bond yields at the last 10 years of daily data. Shorter-term munis (with maturities of one to three years) are well above their 10-year average but not near their peak, by his measure. “As you extend out the curve, the opportunity becomes increasingly attractive, with long-dated yields ranking within the top 10% of their levels over the past 10 years.”

According to Gizzi, the flood of money from separately managed accounts into shorter-term municipal bonds has been one factor in the disparity. At the same time, the still-unsettled Iran war brings continued uncertainty about the outlook for inflation and the markets. “Most investors are comfortable parking their money in the front end of the curve via some SMA or short-term mutual fund, and then waiting it out to see what happens,” Gizzi says