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AI has exploded into being the predominant engine behind America’s GDP growth (1) and the stock market’s celebrated rally in 2026 (2), but while some investment pundits continue to endorse chip makers (3) and hyperscalers, others are warning of the collapse they believe will inevitably follow such speculative conditions.
JPMorgan Chase CEO Jamie Dimon, Mad Money host Jim Cramer, The Big Short inspiration Michael Burry and others have compared the high spirits of recent months to those felt just before the dot-com bubble burst and plunged the world into a paralyzing (although short-lived) recession at the turn of the millennium.
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We can add to this list of admonishers seasoned investment strategist Jim Paulsen, who has recently called attention to an unsettling trend in the S&P 500, going so far as to question “how sustainable a bull market is where so many (most!) companies are essentially failing (4).”
Or, in other words, the market now seems to award failure as well as success.
‘Extreme’ bifurcation between new and old era stocks
Paulsen, who spent decades as chief investment strategist for the Leuthold Group, now — like Burry (5) — dispenses financial advice largely via a Substack (6) and associated newsletter that thousands look to for economic guidance. His last few posts focus on an “extreme” bifurcation of the market that doesn’t bode well for AI enthusiasts.
As Paulsen explains, what keeps such historic stock market highs grounded is the “old era” stocks such as banking, manufacturing and the like, which tend to trend in the same direction as the shiny new tech stocks responsible for the rise. But, what we’re seeing now is the opposite: AI shares “racing ahead almost in isolation (7),” which he suggests is an almost guaranteed hallmark of trouble.
“For the last 30 years, the correlation of daily price movements between new era and old era stocks during the last year has proved to be a good risk indicator for new era investors,” Paulsen wrote.
“The most recent rally in new era stocks since March 30 has been explosive, causing a breakout of optimism among investors that AI excitement is leading the stock market on another significant leg higher. However, this latest rally has been associated with an alarming drop in the trailing 12-month new/old era stock price correlation, suggesting the contemporary rally may not be sustainable.”
