Fidelity's Timmer Suggests Bonds Could Hedge AI Selloff as Correlation Turns Negative

Fidelity's Jurrien Timmer notes that the Goldman Sachs AI basket has fallen 22% since early June, with its correlation to long-term Treasuries turning negative. This shift suggests bonds could act as a hedge during an AI selloff, though the cushion has limits as it only works when yields fall on growth fears, not inflation. The basket, which tracks AI-linked stocks, saw a drawdown starting with a chip selloff in early June that cut the Nasdaq Composite 4.2% in one session. Money flowed into bonds, pushing the 10-year yield down to 4.96% from 5.13%, its first close below 5% since September 22. However, a rebound in AI stocks on October 26 and upcoming inflation data present fragile conditions for the hedge.