The Wall Street consensus trading has failed, and AI panic has triggered market volatility

According to Bloomberg, as Wall Street enters 2026, investors generally hold record low levels of cash reserves and minimal hedging, but several consensus trades have gone wrong after six weeks.

AI has shifted from a "sure-win" trade to a market threat, not to companies developing AI, but to light-asset businesses that may be replaced by AI, such as software companies, wealth managers, and tax advisors. Market volatility has intensified, and inter-asset correlations have increased, with energy, consumer staples, and government bonds—previously viewed unfavorably at the beginning of the year—leading the market. A Bank of America survey shows that the cash holding rate among investors has hit a historic low of 3.2%, with nearly half of fund managers lacking any downside protection measures. Analysts warn that beneath the market's apparent calm lies significant pressure, which could trigger more volatility shock events.