“Markets can stay irrational longer than you can stay solvent.” – attributed to legendary economist John Maynard Keynes
Positive returns keep piling up for many investors. In May, every index we follow, except for the CRB Commodities Index, gained value. The big winner was the MSCI Emerging Markets Index, which jumped more than 10% for the month. Clearly, the Wall Street adage “sell in May and go away” has not been the way to go so far in 2026.
All data as of 06/02/2026, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
This month, we’re focusing on two themes that, in our view, are deeply intertwined: the remarkable resilience of the stock market over recent months, and the accelerating influence of artificial intelligence – not just on the markets, but on the broader economy and the world we live in.
A Market That Keeps Climbing
As we write this on June 3, 2026, all three major U.S. equity indices — the Dow Jones Industrial Average, the S&P 500, and the NASDAQ — are sitting at all-time highs. On the surface, that may not sound unusual. Records, after all, are made to be broken. But it is the context surrounding these highs that our client conversations have been focused on, and what makes this moment worth pausing on.
Consider what markets have navigated in recent months: the outbreak of war with Iran, a sharp spike in oil and gasoline prices, and consumer confidence readings that have fallen to extreme lows. These are precisely the kinds of headwinds that can rattle investors and send markets lower — and for a brief period, they did. March was a bad month for the stock market. Yet what followed was not a prolonged downturn. Instead, markets reversed course quickly and have now posted gains in ten consecutive weeks for the S&P 500. (Chart #1)
To many observers, this feels counterintuitive – maybe even irrational. We’d offer a different framing: it’s not that markets are ignoring the risks. It’s that something else is powerfully capturing investors’ imagination. That something, we believe, is artificial intelligence.
We believe the easiest way for us to show this is through the performance of the Semiconductor Index (SOX) (Chart #2), which is directly tied to the AI revolution, compared to the performance of the S&P 500 (Chart #1). On March 30, 2026, the S&P 500 bottomed out at 6,317 before peaking on June 2, 2026, at 7,620 for an impressive 20.6% higher. Over the same period, the Semiconductor Index moved from a low of 7,084 to a peak of 13,998 for an index return of 97.6%.
While this move higher may feel unexpected and overdone, that doesn’t mean we view it as completely irrational. In fact, just the opposite. Coming into 2026, earnings expectations were what we would consider good but not great. Over the past few months, however, those expectations have changed for the better. Analysts have meaningfully revised their S&P 500 earnings estimates upward for both 2026 and 2027, driven in large part by three converging forces: the easing of tariff pressures, favorable business tax provisions, and — perhaps most significantly — the growing belief that AI is already beginning to show up in corporate profit margins. Wells Fargo Investment Institute, among others, raised its S&P 500 earnings-per-share estimates and price targets multiple times over the past year, citing these exact tailwinds. From that perspective, higher equity prices feel more like the logical response.
Chart #1: www.stockcharts.com Data 09/14/2025 – 06/03/2026 as of 06/03/2026. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200= 200-day moving average
Chart #2: www.stockcharts.com Data 11/2/2022 – 06/03/2026 as of 06/03/2026. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week moving average
Artificial Intelligence: Revolution, Disruption, and the Bigger Picture
As advisors to a large, diverse base of clients, we get to hear what is on people’s minds. In part, the things we write about in this letter every month are based on what we are hearing from our clients and future clients. Lately, few topics have generated more anxiety – or more excitement – than artificial intelligence and its effect on jobs. The dominant narrative in the media is a familiar one: AI is coming for your job (or your children and grandchildren’s job). We’d like to offer a more nuanced view.
Most jobs that have an attachment to technology are more than a single task, but a bundle of tasks, supported by an expensive and often fragmented software stack. Think about how much of a typical workday can be consumed not by actual thinking, but by moving information between systems that don’t talk to each other – copying data from one platform to another, reformatting reports, chasing down answers buried in email threads. We believe that is the friction AI is best positioned to eliminate.
As hard as it may be, think back to 2007 and what it was like before the first smartphone, the Apple iPhone, was released to the public.¹ This new device didn’t just make phone calls; it collapsed an entire ecosystem of devices into one. Cameras, GPS receivers, music players, alarm clocks, and maps were all consolidated into a single interface that most of us now carry in our pocket. It might not feel like it, but AI is doing something remarkably similar to the workplace software stack. It is becoming the new interface, a single layer through which workers interact with information, systems, and decisions. That is a profound shift, but it is not the same thing as mass unemployment.
Those who predict widespread job losses often overlook a well-established economic principle: Jevons’ Paradox.² First observed in 19th-century England, Jevons noted that when coal-burning engines became more efficient, total coal consumption increased, because efficiency made the technology more useful, more accessible, and more widely adopted. The same dynamic played out with electricity in the first half of the 20th century, and again with computing and the internet in the late 20th century. Making a resource more efficient tends to expand total demand for it, not shrink it.
Applied to AI, this suggests that as workers become more productive with AI assistance, the demand for their output (and for their uniquely human capabilities) may increase. By automating the mental drudge work: the data entry, the routine summarization, the repetitive analysis, AI can free workers to spend more time on the things machines genuinely cannot replicate: judgment, creativity, relationship-building, and strategic thinking. Far from making the human element obsolete, we believe AI makes it more valuable.
Investing in the AI Revolution
The current bull market has been fueled by unprecedented levels of capital expenditures by the largest technology companies to build out the AI infrastructure. Locally, we have seen a number of proposed data centers. Globally, the data center infrastructure capacity is expected to double to 200 gigawatts (GW) by 2030 from 2025 levels.
All of this raises a fair question: Will future productivity gains justify the staggering amounts of capital currently being poured into AI infrastructure? A number of research analysts argue that it does – that the productivity gains from AI adoption are large enough and durable enough to rationalize the investment cycle we’re currently witnessing. We are sympathetic to that view. The economic case for AI as a long-term productivity amplifier is compelling.
But we also remember what life was like in 1999. Back then, the internet was, without question, a world-changing technology. The optimists were right about the revolution, but very wrong in the time it would take to produce tangible economic benefits. Investors who piled in at peak valuations paid a steep price before the transformational promises of the internet were finally realized. The Nasdaq fell roughly 78% from its 2000 peak.
We believe AI is likely on a similar trajectory. It is simultaneously a genuine, generational innovation and, at this moment, quite possibly near the peak of its hype cycle. The long-term winners from AI, the companies and sectors whose productivity and earnings are structurally transformed, will likely prove the optimists right. But for investors, the road between here and there may be bumpier than today’s market prices suggest. Bull markets do not last forever.
Final Thoughts
Technological change is one of those things that happens gradually, before we realize the huge shift in the world we live in. We take spreadsheets, smartphones, and information being instantly available to us for granted, yet all of these were the result of technological change. Personally, I (Jon) do not miss carrying around 3 or 4 devices instead of my smartphone.
Currently, AI is rapidly becoming a part of our lives in many ways we take for granted. It is integrated into our email, internet search, and social media experiences. It is also integrating into farming, medicine, and note-taking by medical professionals. A future with self-driving vehicles and house cleaning robots could be in our future.
The bottom line: we are believers in AI’s positive long-term economic impact. We are also students of market history and understand that great companies that are involved in changing the world for the better can become overvalued and become not so great investments. We do not see those two positions in conflict. They are, in fact, the most honest way we know to navigate what we believe is likely to come next.
As always, we’re here to help you navigate the path ahead—whether it’s updating your plan, rebalancing your portfolio, or thinking through the next chapter of your financial journey. If you have questions or want to explore your options, don’t hesitate to reach out.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
Sources:
1 On January 9, 2007, Steve Jobs announced the creation of the first generation of iPhones, with the subsequent release to the public on June 29, 2007.
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.
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Robert I. Cahill, Partner
Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner
Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner
Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner
Susan.Shupp@wfafinet.com