US equity market developments during the AI boom

This box analyses developments in US equity markets during the recent AI boom and highlights recent signs of heightened price differentiation within the broader equity market rally. It shows that, over the past years, US equity valuations have been bolstered by strong realised and expected earnings tied to the AI boom. Risk appetite in US equity markets has been strong, with compensation for equity risk falling to relatively low levels during this period. These factors have supported resilience in US stock markets despite pressures from higher longer-term interest rates and geopolitical headwinds. However, a note of caution is warranted, as market sentiment can be subject to sudden shifts and there is heightened risk price differentiation among the tails of higher-risk technology firms within the AI-driven rally.