Wall Street closed lower on Monday as investors weighed fears over artificial intelligence, developments in the Middle East, high oil prices and the Federal Reserve's closely watched interest rate decision due Wednesday. The major indexes managed to trim sharper losses posted earlier in the session.
The Dow Jones Industrial Average ended the day down 0.29% at 52,421 points, the S&P 500 fell 0.48% to 7,619 points and the Nasdaq dropped 0.56% to 26,186 points.
The indexes opened sharply lower after a fresh rally in oil prices and calls from senior artificial intelligence executives to slow development of the most advanced AI models triggered a heavy sell-off in technology stocks, particularly semiconductor makers.
Losses eased later in the session as oil prices retreated from their daily highs following remarks from US President Donald Trump that Washington was open to a deal with Iran, and a report from an Iranian outlet suggesting a possible gradual agreement between the United States and Tehran. Trump also said Russia and Ukraine had agreed to stop strikes on energy infrastructure, a move that would help ease pressure on diesel prices.
Even so, oil prices stayed on an upward path. Brent crude futures traded just above $105 a barrel, having earlier touched $110, while US crude WTI stood just above $101, down from an intraday high of $105.
Fed rate decision looms
The rise in energy costs revived fears over inflation and how the Federal Reserve will respond. Money markets are now pricing a 92% probability of a 25 basis point rate increase at the meeting concluding Wednesday.
Should the Fed go ahead with the move, it would mark the first interest rate increase since July 2023.
Bond markets opened under heavy pressure, pushing the yield on the 10-year Treasury above the psychological 5% threshold for the first time since 2023. But as equities stabilized, bond yields also pulled back, with the 10-year note easing slightly to 4.967% and the 30-year settling at 5.336%.
AI executives call for a slowdown
The technology sector, led by semiconductor stocks, took the heaviest early hits before stabilizing. The turmoil was traced to a 3,800-word statement from Anthropic chief executive Dario Amodei, which was backed by OpenAI chief executive Sam Altman and Elon Musk, head of SpaceX and xAI.
The three technology industry figures argued that development of the most advanced AI systems needs to slow down to prevent the risk of AI escaping human control and causing catastrophic consequences.
In a similar vein, Microsoft artificial intelligence researchers presented a new set of principles placing limits on the company's development of advanced AI models. The 15,000-word document was summarized by its authors in five words: "Humans matter more than AI."
Trump attacked the Anthropic chief over his call to slow AI development, sharpening his opposition to new restrictions on the industry. He attributed voter backlash against AI data centers and growing unease over frontier models to what he called a "sick conspiracy," saying the only one happy about it was China.
What a slowdown could mean for markets
The key question for markets is whether a potential slowdown in the development of advanced AI models would delay returns on the enormous capital that has been poured into the sector. The answer, however, does not look straightforward.
Ulrike Hoffmann-Burchardi of the UBS Chief Investment Office said it remained uncertain whether calls to slow down advanced models would gain broader support across the industry. She said such interventions were aimed more at shaping a regulatory framework that leading AI labs could accept without halting the flow of investment. Even so, the warning unsettled the market on Monday.
Since the launch of ChatGPT in November 2022, the spread of AI into commercial applications has driven a huge rise in the valuations of major US technology companies. The S&P 500 has climbed from around 4,000 points to above 7,600, adding tens of trillions of dollars in market value.
Semiconductors slide, cybersecurity stocks gain
Semiconductor companies have been among the biggest winners of the AI boom as demand for high-performance chips has surged. The Philadelphia Semiconductor Index has gained 318.3% since ChatGPT's launch, but it lost more than 5% on Monday, with Nvidia and Broadcom leading the declines.
The financial sector also came under pressure, with Bank of America leading losses with a drop of more than 5% after chief executive Brian Moynihan estimated that investment banking fee revenue this quarter could fall more than 10% compared with the same period last year.
Other major decliners on the day included Arm, Lam Research, ASML and Marvell Technology.
On the other side of the ledger, cybersecurity companies stood out among the day's winners. CrowdStrike rose about 15.5%, Palo Alto Networks climbed roughly 14% and Fortinet gained 9%.
The shift toward cybersecurity stocks is linked to concerns over the safety of advanced AI systems: while fears of a slowdown in AI development hit chipmakers, they also reinforced the view among investors that spending on security, data protection and oversight of AI systems will remain strong.
Software companies also showed resilience, including Salesforce, while Elmet Group rallied more than 30% after securing a $450 million investment from the US government aimed at strengthening the domestic tungsten supply chain.
