Huge stock moves are exciting until they go the other way. Here’s why volatility, AI-related debt, and the bond market matter more than ever.
KEY TAKEAWAYS
Volatility is inseparable from return. Investors cannot reasonably expect enormous upside days without accepting that similarly violent downside moves are part of the bargain.
The AI trade has expanded well beyond traditional technology companies. Industrial companies such as Caterpillar can benefit from data-center construction, while financial firms can benefit from financing and trading activity around the buildout.
AI infrastructure increasingly has a credit-market dimension. Massive capital requirements mean borrowing is becoming an important part of financing the next phase of AI investment.
The bond market deserves more investor attention. Changes in yields, spreads, and investor demand can reveal changes in perceived risk before those concerns become obvious in equity prices.
Daily price movements should not replace fundamental analysis. The important questions remain whether the investment thesis holds, earnings are growing, guidance remains strong, and management continues executing.
MY HOT TAKES
People have become conditioned by extraordinary daily returns. Once investors experience repeated double-digit winners, historically attractive long-term returns can suddenly feel boring—and that can distort risk perception.
AI is becoming an economic ecosystem rather than a technology-sector trade. The beneficiaries now include the companies building the physical infrastructure and the financial institutions supplying capital to it.
Debt may ultimately tell us more about AI excess than stock prices do. Equity markets can remain enthusiastic for a long time, while credit investors steadily demand greater compensation as risks accumulate.
Higher AI-related borrowing is not automatically bearish. It becomes important when the price of that borrowing changes, issuance becomes harder to place, or investors begin demanding substantially more compensation for risk.
The solution to volatility is not necessarily to abandon a good investment. Investors should distinguish between a broken stock price and a broken fundamental thesis before reacting to dramatic market moves.
You can quote me: “Volatility isn't a side effect of great returns. It IS the price of great returns.”
Squint your eyes. Do you find yourself checking your portfolio more often lately? Sure, you do! Not so many years ago, stocks would move what felt like fractions of a percent each day. It was the trend we were after. Has it been going up–or down. Pro tip: up is better. That’s it. You would hear something about one of your stocks in a passing conversation, in an article, or mentioned on TV and you would get around to looking into it when you had a chance–if you even remembered. You opened your monthly paper statements from your broker account–sometimes. Was the balance going up? Great. But then it happened…
One day you casually opened that free app on your smartphone which tracks your favorite stocks. And there it was. At first, you were confident that it was an error. You squinted your eyes to sharpen their focus and it appeared to be true. One of your stocks was up 12% for the day. THE DAY. It could take as long as a decade for an increase like that in the olden days. Then it started happening more frequently. You heard over and over how the S&P 500 returned around 10% a year on average over a long period of time, and you were resolved to accept it. 10% is great, if consistent–and compounding made it even better. But 12% in one day–was awesome. You did some mental math and figured that you might be able to retire in 6 months–20 years ahead of schedule! No wait–you like work–you’re not in a hurry to retire, no. You decided that it was time to buy that fast, shiny car! And why not? Your stock-picking prowess has turned your brokerage account into a cash printing machine! You are hooked. You select a handful of stocks that are similar to your newfound banger. And they went straight up as well. Your account checking frequency has moved into the “nervous habit” category–the one that almost made it into the DSM II! You want to track your ascension to financial juggernaut tick by tick. It is exciting. Until, it happened. You opened that app one morning, and all of your favorite money makers were down by double digits–before you even washed off your makeup from last night’s romp on the town!
At first, you were confident that it was an error. You squinted your eyes to sharpen their focus and it appeared to be true (intentionally repeated words for dramatic literary effect). You panic! And in that panic, you do the two things every rattled investor does: you refresh the app fourteen more times hoping the numbers changed their mind, and you start Googling "is this a crash" at 6 AM. in your bathrobe. Here's the thing nobody tells you when you're riding a stock up 12% in a day: the elevator that took you up doesn't have a separate, gentler elevator for the trip down. It's the same shaft. That queasy stomach-drop feeling isn't a malfunction–it's the toll booth on the highway you were so excited to be driving on three weeks ago.
Let's get something straight, because this is the part of the lesson where most financial content quietly changes the subject: volatility isn't a side effect of great returns. It IS the price of great returns. There is no version of the stock market where you get to keep the 12% up days and mail back the 12% down days like a bad Amazon return. Risk and expected return are welded together–not dating, not "it's complicated," welded. If someone tries to sell you an investment with high returns and low risk, do the financially responsible thing and slowly back out of the room. That thing doesn't exist. It never has. It's the Wall Street equivalent of a unicorn that also does your taxes.
So why does it feel so much crazier lately? Because the AI trade didn't stay in its lane. A few years ago, "AI stocks" meant a tidy little club–chipmakers, cloud giants, the usual suspects. Now the guest list has exploded, and some of the new arrivals are...unexpected. Take Caterpillar. Yes, THAT Caterpillar–the company that sells you the yellow machines that dig holes and move dirt. Caterpillar just posted a second-quarter beat that would make a chipmaker blush, with revenue up 24% and adjusted earnings jumping over 70% year-over-year, and raised its full-year growth outlook on the back of it. Why? Because someone has to pour the concrete and generate the backup power for all those data centers, and it turns out that "someone" drives a fleet of bulldozers. The stock popped double digits on the news and dragged the Dow along with it. Caterpillar didn't sell a single GPU. It sold generators and dirt-moving equipment to people building the AI future, and the market decided that made it an AI stock too.
Then there's Goldman Sachs, which I bring up not because Goldman is lending Nvidia a cup of sugar, but because Goldman has quietly become one of the more fascinating case studies in how AI mania spreads sideways through the market. Goldman isn't writing code or stacking GPUs. What it's doing is arranging the financing–helping data-center operators and hyperscalers raise the almost incomprehensible piles of cash this buildout requires, and trading the volatility that comes with it. That's made Goldman's own stock trade less like a stodgy investment bank and more like a leveraged bet on the AI ecosystem's health, dragged around by the same sentiment swings hitting the chipmakers, even though its balance sheet looks nothing like theirs. When AI enthusiasm surges, Goldman's deal pipeline and trading desks light up. When AI enthusiasm gets the shakes, so does Goldman. That's not an accident–it's what happens when a company positions itself at the center of the money flow of the hottest trade on the planet. You don't have to build the casino to feel the vibrations when the casino floor gets rowdy. You just have to run the cage.
Which brings me to the part of this you actually need to be watching, and it isn't the stock ticker. It's the bond market. I know, I know–bonds have the reputation of the guy at the party who wants to talk about his 401(k) contribution schedule. But right now, bonds are quietly doing something far more interesting than stocks: they're pricing risk. Stock investors get emotional. They chase, they panic, they check the app fourteen times before coffee. Bond investors, generally, do not have that problem–hey price risk with the enthusiasm of an actuary and the mercy of a toll collector. And this year, bond investors have had a LOT to price. Goldman Sachs Research estimates roughly $489 billion of AI-related debt has hit the market in 2026 alone, blowing past last year's total, with hyperscalers expected to fund more than a third of future AI capex with borrowed money by 2027. That's not "cash-rich tech company writes a check." That's "cash-rich tech company decides it would rather borrow at scale and keep its powder dry for buybacks and acquisitions," which is a very different thing, and one that shows up on the bond market's radar long before it shows up on mainstream financial TV.
Here's why that matters more than whatever the Nasdaq did at 10:15 this morning. When investors start demanding higher yields to hold AI-linked debt, that's not noise, that's the market's collective risk committee sending you a memo. And there are early signs worth watching: demand for some of this debt has been softening, with weaker coverage ratios on hyperscaler bond deals suggesting investors are starting to ask for a little more compensation to hold the paper. Nobody's ringing an alarm bell here. Spreads are still historically tight, and this is a far cry from a credit crisis. I'm not saying we're in a bubble. I'm not saying we're not. What I am saying is this: if this AI buildout is over-leveraged and over-hyped, the equity market will be the last to know and the loudest to complain about it. The bond market will know first, and it won't complain, it'll just quietly demand a higher price for the risk, one basis point at a time, long before your favorite momentum stock has its next 12% morning.
So the next time your portfolio app delivers one of those stomach-drop mornings, do yourself a favor. Don't just squint at the stock ticker and panic. Glance at the 10-year yield too. It's less exciting, sure. It won't buy you a shiny new car. But it's telling you the truth a lot faster than the stock market ever will. And by the way the same trends you used to love are still there! You can see them–you just have to squint your eyes to blue your vision a bit–so you don’t see the daily ups and downs. Be patient, be diligent–relax. Does your thesis still hold? Is earnings still growing with solid guidance? Is management flawlessly executing? Great. Now pay your toll and keep your eyes on the road.
YESTERDAY’S MARKETS
Yesterday, the S&P 500 fell 0.69%, the Dow Jones Industrial Average slipped 0.22% to 53,343, and the Nasdaq Composite dropped 1.33%. Semiconductor stocks led the selling, with a closely watched chip-sector gauge falling roughly 5% on the day. The VIX Index rose 4.28% to 15.84. The 10-year Treasury yield held near its highest level since early 2025, while the 30-year yield remained close to a 19-year high.
NEXT UP
At 2:00 PM Wall Street Time, the Fed will release meeting minutes from its July 29th FOMC meeting. Do investors care? You bet they do. With little or no communication left from the Fed, we must all go back to those tried and true methods to get a handle on policy. Don’t miss this potentially market-roiling release. The whisper is that there were many more members beyond the three dissenters who wanted to see a rate hike.
Important earnings today: Lowe’s, Estee Lauder, Target, Analog Devices, TJX Cos, and Wolfspeed.