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Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuA downdraft in the artificial intelligence trade recently dragged stocks lower, and the selling pressure may not be over just yet, according to Capital Economics. Last week, the Nasdaq Composite saw its worst weekly performance since June , falling more than 4%, as concern grew about a potential oversupply in memory chips and AI-related companies using too much debt to finance their buildouts. The iShares Semiconductor ETF fell for a ninth straight day, the longest decline in 20 years. And although tech stocks staged a bit of a comeback so far this week, further weakness may still lie in ahead. That’s the view of Capital Economics senior markets economist James Reilly, who sees the S & P 500 falling to 6,500 by the end of next year, implying a more than 15% decline from Monday’s close. The index is ahead more than 12% so far this year, even after sliding about 2% last week. .SPX YTD mountain S & P 500, year-to-date “Despite our view that AI will be a transformative technology, we think the stock market has priced in too much too soon and is heading for a major fall over the coming year,” Reilly said in a note out Tuesday. Conversely, as stock prices weaken, the economist expects bonds to catch a bid, pushing down the yield on the benchmark 10-year Treasury to 4.25% by the end of 2027 — down from about 5.12% on Tuesday. Bond yields and bond prices move inversely, meaning lower yields equal a fixed income rally. Reilly’s optimism toward bonds is borne out of a belief that an AI bust will slow U.S. economic growth, curb debt issuance and spur safe-haven demand for Treasurys. US10Y YTD mountain US10Y, year-to-date Reilly’s outlook assumes oil prices will also move lower over the coming year but, even if they don’t, he doubts that a continued rise in energy would lift Treasury yields — so long as costlier fuel was accompanied by an AI bust. Reilly’s downbeat forecast on stocks stands in contrast to other firms that say the recent tech selling pressure was overdone and is in the process of abating. A Wells Fargo key sentiment gauge recently triggered a buy signal at current levels, a move that’s historically led to gains in the market in the months following. Goldman Sachs also found that hedge funds sold tech stocks at a record pace last week, suggesting future selling pressure may subside.Read More