Volatility in U.S. equity markets is expected to remain elevated in the near term as market participants wrestle with narratives tied to potential disruptions from artificial intelligence, according to analysts at Wolfe Research. The note, authored by a team that includes Chris Senyek and Adam Calingasan, attributes the heightened sensitivity to AI-related concerns as well as mechanical and flow-driven forces.
The Wolfe team noted that the current trading backdrop has been influenced not only by debate over AI's impact, but also by forced selling stemming from short-term trend-following strategies, together with broader fund flows and activity from retail investors. These combined pressures, the analysts said, are contributing to swings across sectors.
Despite turbulence in software names and other groups, the analysts highlighted that consumer staples have "ripped higher" to start the year, a move they link to an improving U.S. economy. That contrast underscores how different parts of the market are reacting unevenly to the same macro and thematic forces.
Wolfe's commentary also focused on the implications of large-scale investments by major technology firms into the infrastructure required to support advanced AI models. Markets have been weighing the possible effects of emerging AI tools on a broad set of industries, with the analysts pointing to potential disruption in areas including data analysis, real estate, information services and logistics.
The analysts further raised the prospect that the enormous capital commitments from mega-cap tech companies toward data centers and related connectivity could, paradoxically, provide relief for some software stocks that have come under pressure from AI-related worries.
"With hyperscaler capital expenditures growing at a breakneck pace, we see bottlenecks in data center buildout likely emerging over the coming quarters," the Wolfe analysts said.
The note continued with a warning about how those bottlenecks might play out. "Whether these bottlenecks are related to power generation, material costs, or regulatory hurdles, a cut/delay in spending would likely serve as a positive catalyst to areas of the market that have seen downward pressure due to AI concerns, namely software stocks."
The Wolfe Research view frames near-term market behavior as a mix of narrative-driven positioning, technical trading dynamics and the real-world constraints that large infrastructure buildouts can face. That combination, according to the analysts, supports an outlook for continued volatility until some of the uncertainty around AI deployment and hyperscaler spending resolves.