The stock market took a hit on Monday, with the S&P 500 dropping 0.48% to close at 7,619.98. Investor worries about a potential stall in artificial intelligence (AI) initial public offerings and the ups and downs in Treasury yields and oil prices fueled this downturn. It wasn't just the S&P; the Nasdaq Composite fell 0.56% to 26,186.41, and the Dow Jones Industrial Average slipped by 152.09 points, or 0.29%, ending at 52,421.20.
AI stocks bore the brunt after Anthropic CEO Dario Amodei called for a slowdown in AI development over safety concerns. His remarks found backing from other tech leaders, putting extra pressure on the sector. Nvidia shares tumbled 3%, while Broadcom and Advanced Micro Devices each saw drops of over 4%. Intel and Marvell Technology had it worse, with losses surpassing 5% and 7%, respectively.
David Wagner from Aptus Capital Advisors pointed out that while the market might react negatively to slowing AI development at first, it could eventually lead to increased free cash flow and potential stock value growth. But he warned that the market is heading into a typically weak period, which might extend the downturn.
In the energy sector, oil prices jumped. West Texas Intermediate crude futures climbed 1.34% to $101.39 per barrel, and Brent crude futures went up 1.02% to $105.68. This rise in oil prices added to the market's woes, with the Dow posting its biggest weekly decline since March.
Eyes are now on the Federal Reserve's upcoming policy meeting in September. There's a 92% chance of a rate hike, and in anticipation, Treasury yields spiked. The 10-year yield hit its highest since October 2023 before settling slightly higher at 4.987%.
Bank of America's shares dropped more than 5% after CEO Brian Moynihan warned of a possible 10% decrease in third-quarter investment banking fees compared to last year. Speaking at the Barclays Global Financial Services Conference, Moynihan also mentioned that trading revenue would likely stay flat.
Raymond James analysts have sounded the alarm on weakening technical signals, predicting a potential stock market correction in the next three months. They pointed to declining price momentum in major indices and a shift towards risk-averse behavior among fixed-income investors.
On the flip side, software stocks showed strength. The iShares Expanded Tech-Software Sector ETF rose around 5%. Leading the charge was SentinelOne, which surged approximately 16%. Cybersecurity firms Zscaler and CrowdStrike also fared well, each rising by more than 15%. However, Arteris and Oracle weren't as lucky, with declines of over 8% and 4%, respectively.
Despite the struggles in the AI sector, some analysts dismiss the warnings about slowing AI development as politically driven. Gil Luria from DA Davidson suggested these cautionary calls are strategic plays by top AI firms to maintain their competitive advantage by pushing for regulatory hurdles.
