US stocks retreat on AI warnings as oil prices, bond yields rise

Wall Street stocks experienced a decline on Monday, primarily due to weakness in tech shares and concern over the pace of artificial intelligence (AI) development. Executives from leading AI companies, such as Nvidia, AMD, and Core Weave, warned that AI advances should be slowed down. This sentiment was echoed by Anthropic CEO Dario Amodei, who called for a coordinated slowdown of AI development to better understand the risks involved.

However, President Donald Trump dismissed these concerns, labeling the fears of AI wiping out humanity as a hoax and emphasizing the need for the US to win a technological race against China.

The AI trade has been a major driver of both the economy and the stock market over the past few years, causing investors to reassess the sector's capital expenditure boom. This led to tempered losses throughout the day, as oil prices and US bond yields moderated slightly. Brent oil prices jumped to around $105.68 a barrel, following Saudi Arabia's decision to close a key pipeline amid the Middle East war.

However, the market saw some optimism as President Trump suggested that Iran might reach an agreement quickly and that the US was open to talks, which helped alleviate some of the inflation concerns.

Treasury bond yields also cooled off, peaking at 5% for the first time since October 2023. This increase in yields is expected to prompt the Federal Reserve to raise interest rates, as US inflation remains well above the central bank's 2% target. While analysts widely anticipate a rate hike, the decision would be seen as a major surprise, as it would put the Federal Reserve on a collision course with Trump, who has advocated for economic relief ahead of the midterm congressional elections in November.

Currently, there is a 92% probability of a hike, with 50 basis points of cumulative tightening projected for the rest of the year, according to Chris Weston, an analyst at Pepperstone.