The S&P 500 and Nasdaq slid Monday on AI safety concerns before paring losses as bond yields eased off a key level. Traders rotated out of AI infrastructure names and into defensive stocks like Johnson & Johnson and Costco ahead of the Federal Reserve's two-day policy meeting.
S&P 500 and Nasdaq bounce off session lows
The S&P 500 and Nasdaq moved lower on AI safety concerns Monday but rebounded from their worst levels of the session. One driver of the intraday bounce was the bond market: stocks were near session lows as the 10-year Treasury yield topped 5%, a psychological level not breached since October 2023. Buyers then stepped in for that yield, pushing Treasury prices up and yields down, which sparked a recovery that brought both indices back toward the flat line.
Oil prices paring their Monday gains also eased pressure on stocks, though WTI crude still settled above $100 per barrel on the day. Inflation worries persisted heading into the Federal Reserve's two-day September meeting, and market odds for a rate hike stood above 92%, according to the CME FedWatch tool.
AI safety essay hits infrastructure stocks, lifts cybersecurity
AI infrastructure stocks led the market lower on uncertainty tied to Anthropic CEO Dario Amodei's weekend essay calling for an industry-wide slowdown in the advancement of new AI models. Meta Platforms, Alphabet, and Microsoft rallied instead, on the view that a slower AI buildout could reduce the need to keep raising capital expenditure expectations. Lower capex would give cash flow more time to catch up and cut the need to repeatedly tap debt markets to fund AI investments.
CrowdStrike and Palo Alto Networks each rose around 14%, the biggest winners in Jim Cramer's Investing Club portfolio Monday, on the reasoning that AI safety worries only reinforce the case that AI advances increase the need for cybersecurity.
Investors rotate into defensive stocks
Outside technology, the market rotated into traditional defensive stocks less tied to the broader economy and the data center buildout. Those included Johnson & Johnson and Eli Lilly in pharma, and Kimberly-Clark and Costco in consumer staples. These companies are seen as better positioned to hit their numbers if a Fed rate hike slows the economy than tech high-flyers.
Source: CNBC
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