Fears of stagflation, when economic growth slows while inflation and unemployment rise, began to bubble up off the back of the report, writes BI’s Filip De Mott.

The economic condition, last seen in the US in the 1970s, is arguably worse than an actual recession. Stagflation’s issue is how difficult it is to manage. Cutting interest rates — a natural remedy during a recession — risks fueling inflation even higher during stagflation.

JPMorgan CEO Jamie Dimon alluded to the threat of stagflation in a recent interview with The Wall Street Journal.

Still, the job market remains relatively strong. And while inflation is a concern, the economy is much stronger than a typical stagflation scenario, Matt Miskin, co-chief investment strategist for John Hancock Investment Management, told me. (The Bureau of Economic Analysis releases its inflation data today, another closely watched datapoint.)

But the specifics don’t always matter to investors.

“You don’t have to get the definition perfectly right for the markets to trade that way,” he added.

Now, the economy will need some type of event (see: bubble popping) for rate cuts to become an option anytime soon, Miskin said.

“It likely cements a market rotation,” he added.

One prime candidate could be a sector that helped buoy the market for so long: AI.

Meta’s stock dropped Thursday despite a strong earnings report after outlining plans to invest “aggressively” in “AI research.” Mark Zuckerberg said it might be a while before returns on those investments are realized.

The tech giant likely won’t be alone in spending big to keep up in the AI race. And if investors aren’t willing to foot the bill, it could spell trouble for a wider market that has relied on the trend to keep its rally going.