Defensive Stocks, Cybersecurity Names Gain as AI Worries Mount

Wall Street shifted away from artificial intelligence infrastructure stocks on Monday, with defensive names rising in their place. The rotation followed a weekend essay by Anthropic CEO Dario Amodei, who called on the industry to decelerate model development.

The S&P 500 and Nasdaq recovered from steep early declines as Treasury yields eased after briefly surpassing 5%. Traders were also considering the possibility of a Federal Reserve rate increase this week. Inflation fears remained ahead of the meeting, with rate-hike odds exceeding 92% on the CME FedWatch tool.

Safety Plays Gain Favor

Johnson & Johnson and Eli Lilly posted gains in the pharmaceutical sector. Kimberly-Clark and Costco rose among consumer staples.

Such stocks typically outperform high-growth technology companies during periods of economic tightening. Their earnings are less reliant on the capital spending cycle that has fueled this year's AI rally.

The move extended a broader pullback from AI-linked equities. Futures were shaken Sunday night by the AI slowdown concerns, hours before Monday's opening bell.

Cybersecurity and Hyperscalers Advance Too

CrowdStrike and Palo Alto Networks each surged roughly 14%. The increases reflected a belief that AI safety concerns bolster the case for cybersecurity investment.

Interestingly, Meta Platforms, Alphabet, and Microsoft also rose. Investors wagered that a slower AI buildout could reduce the urgency to keep boosting capital spending and tapping debt markets.

That would give free cash flow more room to catch up with AI spending.

The AI buildout remains supply-constrained. A temporary halt in model development could allow hardware and data center capacity to catch up with demand.

Amazon would likely have risen as well, but its large retail business kept the stock under pressure.

Oil prices trimmed earlier gains. West Texas Intermediate crude nonetheless ended above $100 a barrel.

The bond market's afternoon reversal softened Monday's losses. No major U.S. economic data is due before the Federal Reserve's decision Wednesday.

The Fed's two-day meeting, starting Tuesday, could reshape the outlook for both defensive and AI-linked stocks.