RBC strategist says market underprices AI doomsday risk
This digest was compiled by AI from multiple sources — links to the originals are below.
RBC Capital Markets' Amy Wu Silverman said markets may be mispricing the risk of an AI-driven doomsday scenario or serious stock drawdown. She argued that AI's broad reach has distorted correlation signals, leaving investors more exposed than they realize. Her warning comes as CBOE's three-month implied correlation index trades near its lowest level this year.
Key Facts
- CBOE's three-month implied correlation index is trading near its lowest level this year.
- Silverman said the market is pricing only a 0.5% probability of a doomsday scenario, which she considers substantially higher.
- Silverman made the comments on Yahoo Finance's Market Hang on Tuesday.
Correlation Distortion
Silverman explained that because artificial intelligence touches so many industries, it has distorted typical stock market signals. CBOE's three-month implied correlation index, which approximates the market's expectations for how correlated stocks will be over the next three months, is currently trading near its lowest level this year. However, that metric may be misleading in current markets, Silverman pointed out, as the AI infrastructure build-out and demand for compute have broadened the AI theme to non-tech sectors. She said the market is in a highly dispersed state with low correlation in the S&P 500, but that is not true because it is actually all the same trade.
Doomsday Probability
Silverman said the probability of a doomsday scenario is much higher than the market has priced. She noted the market is essentially saying there is a 0.5% risk of all these circular financing fees, downside, and left tails, and she has thought for a while that the probability is substantially higher. The AI-driven market does not appear to be slowing, meaning events like the midterm elections or even low-probability market shocks could have drastic cascading effects.
1 source
Time · lag behind first