On Monday, stocks closed lower as concerns over artificial intelligence slowing economic growth pushed chipmakers down, dragging the Nasdaq 100 to its lowest level in six weeks. The Dow Jones Industrial Average declined by -0.29%, the S&P 500 fell by -0.48%, and the Nasdaq 100 dropped by -0.82%.
The pressure came after leaders of the largest AI firms proposed slowing the technology’s development, raising concerns that efforts to rein in AI could curb billions of dollars in capital spending needed to build out the technology. That caution from the industry’s top names sent chipmakers and AI-infrastructure stocks sharply lower.
Chipmakers Fall Sharply
The iShares Semiconductor ETF (SOXX) dropped more than -5% to a one-week low. Teradyne (TER) finished down more than -13%, leading the losers on the Nasdaq 100. Arm Holdings (ARM) also closed down more than -9%.
More than -8% was the loss for Lam Research (LRCX), while ASML Holding NV (ASML) closed down more than -7%. Marvell Technology (MRVL), KLA Corp (KLAC), and Applied Materials (AMAT) all fell more than -6%. Intel (INTC), NXP Semiconductors NV (NXPI), and Micron Technology (MU) all fell more than -5%.
Five companies declined by over -4%, with AMD, ADI, AVGO, SNDK, and WDC all among that group. Two other firms dropped by more than -3%, with NVDA and MCHP included in that total.
Software Stocks Rise
On Monday, software stocks climbed as the prospect of an AI spending slowdown eased the risk of upheaval for software companies. That gain followed a mixed session in bonds, where yields abandoned an early rise and declined when crude oil prices pulled back from their peaks.
The president announced that Ukraine and Russia have agreed to refrain from striking each other’s energy infrastructure. That announcement helped ease concerns about supply, even as crude oil prices had already risen to a 3.75-month high, pushing inflation expectations upward and lifting global interest rates.
On Monday, bond yields moved in opposite directions. The UK Gilt 10-year bond yield climbed to a 19-year high of 5.43%. At the same time, the 10-year German Bund rose to a 17-year high of 3.56%, and the 10-year T-note yield rose to a 2.75-year high of 5.01%. All three reached multi-decade peaks.
“Quite concerning”
ECB Executive Board member Isabel Schnabel described recent energy price moves while officials consider additional interest rate increases. ECB Governing Council member Peter Kazimir said inflation risks are “clearly tilted to the upside”, adding that the central bank will raise interest rates further if necessary.
Crude Oil Rallies, Then Retreats
Oct WTI crude oil prices (CLV26) rose more than +1% on Monday to a 3.75-month high on concern that global oil supplies will get even tighter after Saudi Arabia closed a major pipeline following attacks. The East-West pipeline carries 7 million bpd of crude and was shut late last week as a precaution following attacks by Houthi rebels.
On Thursday, Saudi Arabia informed OPEC that its crude output for August had dropped to 6.238 million bpd, the lowest level recorded since 1990. The pipeline carries oil away from the Persian Gulf toward the Red Sea, where it can be loaded onto tankers.
After Trump’s remarks, crude prices moved away from their peak level. The US Energy Secretary’s comments added to the pressure on crude. He noted that 12 million bbl of crude passed through the Strait of Hormuz on Sunday, which helped ease concerns about tight supplies.
Banks Retreat as Traders Lag
On Monday, bank stocks declined, with Bank of America (BAC) leading the slide after its chief executive noted that sales and trading had been “relatively flat” in the third quarter relative to the prior year. The stock dropped by 4%. Goldman Sachs (GS) and Morgan Stanley (MS) both fell more than 3%, joining the broader retreat.
All four of the big banks fell by at least 1% on the day: Citigroup (C), JPMorgan Chase (JPM), Bank of New York Mellon (BNY), and Wells Fargo & Co (WFC).
Overseas Markets Follow Downward Trend
Overseas stock markets settled lower on Monday. The Euro Stoxx 50 fell to a six-week low and closed down -1.02%. China’s Shanghai Composite closed down -0.07%. Japan’s Nikkei-225 Stock Average dropped to a six-week low and closed down -0.81%.
Markets are discounting a 92% chance of a +25 bp Fed rate hike at the Tue/Wed FOMC meeting. Markets are also discounting a 69% chance of a +25 bp ECB rate hike at the ECB’s next meeting on October 29.
Two opposing pressures are shaping how the market performs right now. The rise in crude oil prices has driven inflation expectations and global interest rates to levels not seen in decades, which works against bonds and growth stocks. At the same time, a slowdown in AI spending has unsettled investors over the demand that fuels the semiconductor industry.
On Monday, software shares received some breathing room due to the diminished prospect of slashed AI spending, which cuts down the danger of trouble for software companies. However, chipmakers and AI stocks bore the full weight of the selling.
The UK Gilt 10-year bond yield hit 5.43%, a 19-year high. The 10-year German Bund reached 3.56%, a 17-year high. The 10-year T-note yield touched 5.01%, a 2.75-year high.
T-note prices dropped on Monday as crude oil prices came down from their peak following remarks from President Trump that Ukraine and Russia had agreed to stop attacking each other’s energy targets. Monday’. The fall in oil prices prompted short covering in T-note prices. At the same time, a decline in technology shares also added to the demand for T-notes as a safe haven.
Government bond yields moved up across the board, with the German short-term rate reaching its highest level in over a year and the British medium-term rate hitting its own multi-year peak. The 10-year German bund yield rose to a 17-year high of 3.555%, closing the session up +1.3 basis points at 3.518%. The 10-year UK gilt yield touched a 19-year high of 5.434%, ending the day up +2.4 basis points at 5.367%.
The message is straightforward: traders are betting on strong moves from central banks. The Federal Reserve is projected to raise rates by 25 basis points at its Tue/Wed gathering, while the European Central Bank is seen lifting its own rate by 25 basis points at its October 29 session.
The strain on equities is considerable. A mix of higher interest costs, constrained crude supplies, and doubt over artificial intelligence funding does little to support a robust market advance.
Key Facts Box
- S&P 500: -0.48%
- Dow Jones Industrial Average: -0.29%
- Nasdaq 100: -0.82%
- SOXX (Semiconductor ETF): -5%+
- Teradyne (TER): -13%+
- Arm Holdings (ARM): -9%+
- Oct WTI crude oil (CLV26): +1% to a 3.75-month high
- UK Gilt 10-year bond yield: 19-year high of 5.43%
- German Bund 10-year yield: 17-year high of 3.56%
- T-note 10-year yield: 2.75-year high of 5.01%
- Fed hike odds: 92% chance (+25 bp at Tue/Wed FOMC)
- ECB hike odds: 69% chance (+25 bp at October 29)
The fallout from the AI slowdown proposal continues to ripple through the market. Investors remain concerned that any push to restrain the technology could hold back billions of dollars in capital spending meant for building it out.
For now, the Nasdaq 100 is at a six-week low, and the semiconductor sector is under pressure. The question is whether the AI slowdown proposal becomes a permanent headwind or a passing concern.
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