AI Safety Fears Drive Investors to J&J, Costco, and CrowdStrike for Cybersecurity

Defensive stocks rallied Monday as Wall Street rotated out of artificial intelligence (AI) infrastructure names. The move followed a weekend essay in which Anthropic CEO Dario Amodei urged the industry to slow model development.

The S&P 500 and Nasdaq clawed back steep early losses as Treasury yields eased after briefly topping 5%. Traders also weighed a possible Federal Reserve rate hike this week. Inflation concerns persisted ahead of the meeting while rate-hike odds stood above 92% on the CME FedWatch tool.

Investors Rotate Into Safety

Johnson & Johnson and Eli Lilly gained in pharmaceuticals. Kimberly-Clark and Costco advanced in consumer staples.

These stocks typically hold up better than high-growth technology names when economic conditions tighten. Their earnings depend less on the capital spending cycle that has powered this year’s AI trade.

The move extended a broader retreat from AI-linked shares. The AI slowdown rattled futures Sunday night, hours before Monday’s opening bell.

Cybersecurity and Hyperscalers Also Gain

CrowdStrike and Palo Alto Networks jumped about 14% each. The gains reflected a view that AI safety worries strengthen the case for cybersecurity spending.

Interestingly, Meta Platforms, Alphabet, and Microsoft also advanced. Investors bet a slower AI buildout could ease pressure to keep raising capital spending and tapping debt markets.

That would give free cash flow more time to catch up with AI investment.

The AI buildout remains supply constrained. A temporary pause in model development could let hardware and data center capacity catch up to demand.

Amazon likely would have gained too, but its large retail business kept shares under pressure.

Oil prices pared earlier gains. West Texas Intermediate crude still settled above $100 a barrel.

The bond market’s afternoon reversal cushioned Monday’s losses. No major U.S. economic reports are due before the Federal Reserve’s decision Wednesday.

The Federal Reserve’s two-day meeting, which opens Tuesday, could reset the outlook for defensive and AI-linked stocks alike.