The Great Decoupling: Stocks and Rising Yields in a New Economic Regime

The traditional inverse relationship between stock prices and bond yields has frayed in recent years, but the emergence of AI-driven productivity is reshaping the economic landscape in ways that defy historical norms. As interest rates remain elevated and central banks grapple with inflation, a new dynamic is taking hold: structural economic resilience fueled by generative artificial intelligence (GenAI). This resilience is enabling stocks-particularly in AI-centric sectors-to thrive even as yields climb, creating what appears to be a "Great Decoupling" between asset classes.

AI as the Engine of Productivity and Resilience

The surge in AI adoption has become a cornerstone of economic performance. According to a report by EY, GenAI adoption in U.S. firms rose from 3.7% in late 2023 to 10% by September 2025, with AI-driven capital spending boosting GDP growth by 1 percentage point in Q2 2025 alone.

This acceleration is not merely speculative: AI-related business investment surged at an annualized rate of 18% in the first half of 2025, underscoring its transformative potential.

Long-term projections are equally compelling. Wharton's budget model estimates that AI could increase productivity and GDP by 1.5% by 2035, 3% by 2055, and 3.7% by 2075. These gains stem from automation and enhanced decision-making, though their distribution remains uneven. Sectors like finance and information technology, which have aggressively adopted AI, are seeing slower job growth but significant productivity improvements according to EY. Meanwhile, the National Academies of Sciences note that AI's potential spans all industries, though its current impact is constrained by low adoption rates.

The Yield Paradox: AI and Bond Market Skepticism

Despite these productivity gains, bond markets have reacted with caution. A study by MIT Sloan reveals that long-term U.S. Treasury yields fell by over 10 basis points in the 15 trading days following major GenAI model releases-a "economically large" shift. This decline suggests investor skepticism about AI's ability to deliver widespread consumption growth or avoid labor market disruptions. Yet, this skepticism contrasts with the reality of AI's rapid integration into daily life: by August 2025, 54.6% of U.S. adults aged 18–64 had used GenAI, surpassing historical adoption rates for the internet and personal computers.

The disconnect may reflect a broader tension. While AI is already generating measurable productivity gains-workers report time savings equivalent to 1.6% of all work hours according to the St. Louis Fed-bond markets remain focused on macroeconomic risks. This creates a paradox: AI is driving structural resilience, yet yields remain anchored to traditional inflation and growth expectations.

Stocks in the AI Era: Sector Performance and Investor Sentiment

The stock market, however, has embraced AI's potential. The enterprise AI market expanded from $1.7B to $37B between 2023 and 2025, capturing 6% of the global SaaS market. Startups now hold 63% of the AI applications market in 2025, signaling a shift in favor of nimble innovators over established incumbents according to Menlo Ventures. Yet, this growth has not been without volatility. In November 2025, AI-related stocks in the S&P 500 fell 1.8% as investors scrutinized valuations tied to infrastructure spending. This volatility reflects a maturing market: investors are no longer betting on AI hype alone but demanding tangible revenue growth and productivity metrics according to Southern Security.

Leading companies are delivering. Top-performing organizations allocate 70% of AI efforts to organizational change and workforce upskilling, reaping 2.1 times greater ROI than peers. This strategic focus is translating into stock performance, with seven of the ten largest S&P 500 companies tied to AI contributing nearly 30% of the index according to RDM Financial. Even as the Federal Reserve delayed rate cuts in 2024, AI-driven sectors maintained momentum, with technology stocks hitting all-time highs in late 2025 on robust earnings and capital expenditure.

Implications for a High-Rate World

The Great Decoupling highlights a new economic regime where AI-driven productivity offsets the drag of high interest rates. While traditional models assume rising yields weaken equities, AI's structural impact is creating a floor for stock valuations. This resilience is most evident in sectors where AI adoption is highest-finance, information technology, and professional services-where productivity gains are outpacing labor costs according to EY.

For investors, the lesson is clear: the old rules are no longer sufficient. AI is not just a technological shift but a redefinition of economic resilience. As the St. Louis Fed notes, AI is becoming more efficient, affordable, and accessible, with inference costs for systems like GPT-3.5 dropping sharply in 2024. This democratization of AI will likely widen its economic impact, further decoupling stocks from yield trends.

Conclusion

The Great Decoupling is not a temporary anomaly but a structural shift driven by AI's transformative power. While bond markets remain cautious, stocks-particularly in AI-centric sectors-are thriving in a high-rate environment. For investors, the challenge lies in identifying companies that can translate AI adoption into sustainable productivity gains. As the National Academies observe, AI's potential is vast, but its benefits will depend on complementary investments in human capital and organizational change. In this new regime, the winners will be those who embrace AI not as a buzzword but as a catalyst for enduring economic resilience.