The AI Investment Cycle Is Rewriting the Market Playbook

Alfred Lam - Oct 28, 2026

Artificial Intelligence (AI) investment is challenging the traditional link between interest rates and equity markets. Explore what this shift means for valuations, volatility and diversification.

Investors often associate interest rate cycles with economic cycles. Historically, central banks have used monetary policy to either stimulate or slow economic activity in pursuit of stable growth and inflation. Today, however, the relationship has become less straightforward. The emergence of artificial intelligence (AI) as a powerful investment and productivity theme is reshaping the economic landscape, with some estimates suggesting that AI-related investment and adoption could add meaningfully to U.S. economic growth over the coming decade.

As a result, the economy's sensitivity to interest rates may be less pronounced than in previous cycles. Traditional indicators such as inflation, interest rates and unemployment remain important, but their ability to explain short-term equity market performance has become increasingly challenged.

Recent market action provides a good example. The yield on the 10-year U.S. Treasury rose sharply from 4.75% at the end of August to 5.29% by September 30. Under traditional market thinking, higher borrowing costs and a higher discount rate for future earnings would be expected to weigh on equity valuations. Yet over the same period, the S&P 500 Index declined only 0.4%, while the technology-heavy Nasdaq-100 Index gained 3.3%. Source: Bloomberg Finance L.P.

The reason is that today's equity market, particularly the largest companies within the S&P 500, is increasingly driven by the AI investment cycle rather than the interest rate cycle. For now, this has been a tailwind for investors. However, the AI cycle is inherently more difficult to forecast than traditional economic cycles.

Economic variables typically evolve gradually and are published on predictable schedules. Central bank decisions, for example, occur at regular meetings (generally monthly) and are extensively analyzed beforehand. AI innovation, by contrast, can advance rapidly and unexpectedly. New breakthroughs, applications or productivity enhancements can emerge without warning, just as challenges related to regulation, cybersecurity, infrastructure constraints or competitive disruption can surface suddenly.

Investors have benefited significantly from the positive developments associated with AI. Nevertheless, the very factors that have driven strong returns also introduce a higher degree of uncertainty. While the opportunities remain compelling, maintaining diversification and preparing portfolios for a wider range of outcomes will be increasingly important as markets continue to navigate this evolving investment landscape.

About the Author

Alfred Lam, MBA, CFA

Alfred Lam, Senior Vice President, Co-Head of Multi-Asset, joined CI GAM in 2004. He brings over 23 years of industry experience to his portfolio design, asset allocation, portfolio construction, and risk management responsibilities, which include chairing the multi-asset investment management committee and sizing investment bets to drive added value and manage risk. Alfred holds the CFA designation and an MBA from York University Schulich School of Business.

IMPORTANT DISCLAIMERS The opinions expressed in the communication are solely those of the author(s) and are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Global Asset Management and the portfolio manager believe to be reasonable assumptions, neither CI Global Asset Management nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise. Certain names, words, titles, phrases, logos, icons, graphics, or designs in this document may constitute trade names, registered or unregistered trademarks or service marks of CI Investments Inc., its subsidiaries, or affiliates, used with permission. All other marks are the property of their respective owners and are used with permission. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document. CI Global Asset Management is a registered business name of CI Investments Inc. ©CI Investments Inc. 2026. All rights reserved.