Goldman Sachs slides 4.2% as AI, Fed fears hit bank stocks

Bank stocks suffered their worst session in two months as AI-lending exposure and Federal Reserve uncertainty triggered a selloff in financial shares.

Major US bank stocks tumbled Wednesday, with Goldman Sachs Group Inc. sliding 4.2%, as AI-sector weakness and Fed rate-decision uncertainty triggered a selloff in financial shares.

"Banks are getting caught in the crosscurrents of AI-exposure concerns and positioning ahead of the Fed," said Ross Mayfield, an investment strategist at Baird.

Morgan Stanley fell 3.3%, Citigroup dropped 3.2% and JPMorgan Chase declined 2.4%. The selloff in financials stood in contrast to the broader market, where the Dow Jones Industrial Average rallied 537 points, or 1%, to 52,747.32, extending a three-day winning streak. The S&P 500 added 0.2% to 7,428.78, while the Nasdaq Composite edged down 0.2% as the VanEck Semiconductor ETF slid more than 3%, its fourth straight decline.

The divergence highlights a rotation out of technology and into so-called old-economy sectors that has gathered pace over the past six to eight weeks. The Financial Select Sector SPDR Fund surged to a record high even as individual bank stocks fell, suggesting the selloff was concentrated in money-center banks with large AI-lending exposure. The Fed's rate decision, due later Wednesday, will test whether the rotation can sustain, with futures pricing in a quarter-point hike by September.

The selloff in bank stocks coincided with a deepening rout in semiconductor shares after SK Hynix Inc. reported weak earnings, stoking concerns that the massive infrastructure buildout tied to artificial intelligence may not deliver the returns investors expect. Nvidia Corp.'s $750 billion in infrastructure deals has raised debt-servicing concerns, with the cost of protecting its bonds against default surging to a record on Monday, according to data from Bloomberg.

The rotation out of growth and into value has been a dominant theme since early June. The Technology Select Sector SPDR Fund hit its lowest level since May 7, while the Health Care Select Sector SPDR ETF also surged to a record high. West Texas Intermediate crude fell about 4% to settle at $79.26 a barrel, lending support to consumer-facing sectors as energy costs declined.

JPMorgan Chase & Co.'s market intelligence team said its tactical positioning monitor is "now flashing a buy-signal" for the S&P 500, citing lower bond yields, a weaker US dollar and strong corporate earnings. The team flagged semiconductor crowding as a risk, with AI spending "no longer an automatic win" for chipmakers and infrastructure providers.

The Federal Reserve is widely expected to hold rates steady at the conclusion of its two-day meeting Wednesday. Investors will focus on the statement and Chair Jerome Powell's press conference for clues on the path forward, with the CME FedWatch Tool showing a quarter-point hike fully priced in for September.

"This momentum unwind has been a story that's been playing out for six to eight weeks now, and it has a lot more to do with the technicals of the market than any fundamental changes," Mayfield said. However, the rotation into cyclical and rate-sensitive sectors such as consumer discretionary will depend on oil prices and interest rates staying around their current levels, he added.

This article is for informational purposes only and does not constitute investment advice.