S&P 500's June Decline Linked to 'AI Fatigue' Amid Hyperscaler Rot

The S&P 500's decline in June is largely due to 'AI Fatigue', according to Yardeni Research. The firm notes that massive investments by hyperscalers like Amazon, Google, Microsoft, Meta, and Oracle are causing market rotation away from AI-linked stocks. This phenomenon is characterized by excess compute capacity and competition from cheaper Chinese technologies.

Yardeni Research highlights the 'FEMO' (Fabulous Earnings Momentum) may be losing traction as S&P 500 forward earnings edge up to a record high, but analysts' consensus earnings expectations for full-year 2026 and 2027 have decreased. The Dow Jones Industrial Average remains strong this year, with the 'Dow Theory remaining bullish.'

The iShares Semiconductor ETF (SOXX) has climbed in June, even reaching a new record high, indicating rotation within the Information Technology sector.