Market Indexes Drop as Chip Stocks Take the Weekend's News Badly

It's another volatile day on Wall Street. The three core indexes are down again after ending last week on a high note. The catalysts? The usual suspects, but with some new twists.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) declined 0.4% just after noon ET, matching the S&P 500 (SNPINDEX: ^GSPC). The Dow Jones Industrial Average (DJINDICES: ^DJI) slipped just 0.1% at the same time. All three headed into lunch well off their lows; the Nasdaq had been down as much as 1.3%.

^DJI data by YCharts

When the AI industry asks for brakes, chip stocks pay first

Anthropic CEO Dario Amodei published an essay on Saturday, calling for AI companies to slow the pace at which they improve their models. He highlighted a recent incident in which rival OpenAI's AI agent models broke into the Hugging Face platform without permission.

OpenAI founder Sam Altman (ChatGPT) and Space Exploration Technologies (NASDAQ: SPCX) CEO Elon Musk (Grok) both said they agreed, which is a sentence I don't get to write often. Separately, Altman called an OpenAI public offering this year "ill-advised."

Semiconductor stocks took the essay on the chin. Down 2.8%, Nvidia (NASDAQ: NVDA) was the largest single drag on both the S&P 500 and the Nasdaq Composite. Memory chip giants Micron Technology (NASDAQ: MU) and SK Hynix (NASDAQ: SKHY) dropped 5.6% and 7.4%, respectively.

Software moved in the opposite direction, though. Microsoft (NASDAQ: MSFT) rose 1.9% while Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) added 2%. Investors say it might be best for AI software leaders to slow their hardware spending for a while, as Amodei and Altman suggested.

Oil supplied another leading theme. Saudi Arabia shut its East-West pipeline, the main route bypassing the Strait of Hormuz, following a drone strike launched from Iraq. Iranian allies in Oman are limiting access to the alternative Red Sea shipping route. Brent Crude oil is up to a four-month high of $108 per barrel.

President Trump blames high energy prices on Ukrainian forces shutting down Russia's oil and natural gas exports. Either way, soaring energy prices are weighing on the global economy again.

And despite the AI and oil pressure, the Dow is barely budging. 21 of its 30 components are up right now, led by software titans Microsoft, Alphabet, and Salesforce (NYSE: CRM). The index score is still negative, as heavyweights Goldman Sachs (NYSE: GS) and Caterpillar (NYSE: CAT) each erased roughly 180 Dow points. As weird as it sounds, Caterpillar has become a weather vane for the AI data center construction market, while Goldman reacted to high Federal bond yields and geopolitical turbulence.

The Fed votes Wednesday, and oil isn't cooperating

The Fed meets Tuesday and Wednesday, and futures put the odds of a quarter-point hike around 90% at the end of this conference. The 10-year Treasury yield briefly touched 5% Monday, a level it hasn't seen since October 2023.

Diesel just hit a record above $6.23 a gallon, and energy drove more than a third of August's inflation increase, so this isn't an abstract problem.

As for the AI slowdown talk, opinions differ on how long it matters. Some analysts expect it to weigh on markets for days or weeks. Others propose that less hardware and data center spending might mean lower earnings but better free cash flow. Many investors would happily take that trade.

Two separate risks, one trading session, and a rate decision on Wednesday. September is living up to its gloomy reputation so far.

Anders Bylund has positions in Alphabet, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Caterpillar, Goldman Sachs Group, Micron Technology, Microsoft, Nvidia, and Salesforce. The Motley Fool has a disclosure policy.