Rising together, their fingers intertwined, they strolled down the lane, exchanging hellos with familiar faces, pausing to chat with the street performer strumming their beloved melody, pausing to toss bread to the ducks, to care for the rose bush. The scent of chocolate and nut

AI and software stocks are now rising together. The 1-month correlation between AI-related stocks and software stocks has risen +0.70 over the last month, to +0.15, marking its largest monthly increase since July 2025. By comparison, the 1-month correlation was as low as -0.56 in July 2026, as investors increasingly viewed AI as a threat to traditional software businesses. As a result, hedge fund exposure to software and services stocks declined -5 percentage points over the 12 months ending July, to just ~1% of total global hedge fund market exposure, near its lowest level on record. The recent increase in correlation comes as some software firms previously viewed as vulnerable to AI are actually finding ways to use the technology to strengthen their existing businesses, improve productivity, and defend their competitive advantages. Meanwhile, the US software ETF, $IGV, is up +39% since its April low, recovering most of its drawdown that began in October 2025. The AI trade may be shifting from disruption to adaptation.

The relationship between stocks and bonds has completely flipped: The 90-day correlation between the 10Y Treasury Yield and the S&P 500 is down to -0.48, its most negative reading since 1999. This means that rising Treasury yields have recently been associated with weaker stock market performance, while falling yields have supported equities. The current reading is even more negative than the 2022 bear market low of -0.42. For context, before the 2020 pandemic, the correlation was positive for over a decade, with Treasury yields and equities often rising together as higher yields reflected stronger economic growth. Currently, the negative correlation suggests investors are viewing higher yields less as a sign of economic strength and more as a result of inflation uncertainty and fiscal concerns. All eyes are on the bond market.