It’s shaping up to be a rough start to the week for US equities, and once again it is tech that is taking the brunt of the selling.
S&P 500 futures are down 0.8% while Nasdaq futures are down 1.8%, with the latter being dragged lower by another sharp rethink of the AI trade. Nvidia is down nearly 3% in pre-market trading, but the weakness is spreading across other chipmakers and mega-cap technology names.
The trigger this time is perhaps slightly different. It comes after some of the biggest names in AI raised questions over whether development of the most advanced models may need to slow on safety grounds.
Anthropic CEO, Dario Amodei, published a long essay urging AI companies to intentionally slow the progress of frontier models. And in response, OpenAI CEO, Sam Altman, wrote that “I agree with Dario that we need to pace the frontier” before adding that OpenAI itself will take similar steps.
Why does this matter?
It matters because markets have spent years pricing in almost relentless growth in AI spending. So if development slows, even temporarily, investors have to reconsider how quickly demand for chips, data centers and computing infrastructure will grow.
And when valuations across the AI complex are already demanding, it doesn’t take much uncertainty to stir the pot and trigger a wave of selling.
But I wouldn’t pin today’s selloff entirely on AI.
Oil prices are surging again, with Brent crude pushing above $107 as Middle East tensions intensify. That brings the inflation problem straight back into focus just as markets head into a crucial Fed meeting this week.
Markets are now heavily pricing in a 25 bps Fed rate hike for Wednesday while 10-year Treasury yields remain close to 5% currently. That is a particularly uncomfortable combination for growth stocks. That as higher yields make lofty future earnings worth less today, while higher energy prices threaten to keep inflation sticky and corporate costs elevated.
As such, the pressure point on equities today is coming from multiple angles. And for a market that has leaned heavily on mega-cap tech to keep the broader rally going, it is enough to cause the mood ahead of the open today look decidedly shaky.
This article was written by Justin Low at investinglive.com.