AI Trade Drives Nasdaq Higher While Dow and Russell 2000 Slide in September

TLDR

• The S&P 500 fell 0.4% in September while the Nasdaq Composite gained 1.8%, hitting a new peak on September 22.
• The Dow Jones Industrial Average dropped about 4.3% and the Russell 2000 fell 5.4% during the month.
• Treasury yields surged to multi-decade highs, with the 2-year, 10-year, and 30-year yields all rising sharply.
• UBS says AI-related investment and stock gains now account for 80% or more of US economic growth.
• Intel, Advanced Micro Devices, and Meta were the Nasdaq’s top gainers in September.

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Wall Street had a mixed September, but artificial intelligence stocks kept parts of the market afloat. The S&P 500 declined 0.4% for the month as Treasury yields climbed. The index is now 1.9% below its record high from August.

September is historically a weak month for stocks. Since 1950, the S&P 500 has averaged a 0.6% decline during the month.

The Nasdaq Composite told a different story. It gained 1.8% and touched a new peak on September 22, closing the month at 26,861.06 points.

Tech names like Meta and AMD helped push the Nasdaq higher. Several semiconductor stocks also contributed to the gains.

Dow and Small-Caps Struggle While Tech Leads

Not every index shared in the gains. The Dow Jones Industrial Average fell roughly 4.3% in September.

The Russell 2000, which tracks smaller companies, dropped 5.4%. Interactive Brokers chief strategist Steve Sosnick described the divide simply. “It’s AI or bust,” he said.

Sosnick added that despite the Nasdaq and S&P 500 outperforming other indexes, there are concerns beneath the surface.

Treasury yields played a large role in the month’s volatility. The 2-year and 10-year yields each rose by about half a percentage point.

The 30-year yield climbed nearly 40 basis points since the end of August. The last time all three bonds moved this much at once was September 2022.

Rising yields have also affected the IPO market. Smart-ring maker Oura postponed its planned stock offering this week.

Other companies, including Holtec Nuclear and Bamboo Insurance, have cited shaky market conditions for pulling back their own listings.

Anthropic has reportedly pushed back its planned public debut from October to November. The listing had been expected to be the biggest IPO of the fourth quarter.

AI Spending Now Drives Most US Growth

UBS chief economist Arend Kapteyn said AI-related investment and the wealth created by rising AI stocks now make up 80% or more of US economic growth.

“It just looks like AI is neutralizing everything, at least on an aggregate level,” Kapteyn said.

UBS raised its estimate for AI-driven capital spending next year by $200 billion, bringing the total to $1.4 trillion. Kapteyn said spending outside the AI sector is “running at zero.”

This concentration carries risk. Kapteyn noted that rising AI stocks have helped support consumer spending, especially among higher-income households.

If the AI trade reverses, it could hit the economy in two ways: slower business investment and weaker consumer spending.

UBS does see some signs the boom is spreading beyond tech. Kapteyn said every dollar spent on AI capital this quarter tends to generate about $1.50 in investment the following quarter, with only a third of that going back into tech.

Looking at individual stocks, Intel gained 34.32% in September, the top performer on the Nasdaq. AMD rose 29.96%, and Meta climbed 26.70%.

Marvell Technology and Astera Labs also posted double-digit gains for the month.

Not every stock fared well. Axon Enterprise fell 25.42%, the worst performer among major decliners.

Intuit, Paychex, DoorDash, and Autodesk also posted double-digit losses in September.

Analysts expect October to bring more volatility. The Federal Reserve’s next rate decision and ongoing US-Iran tensions are both seen as possible factors.

Expectations for another rate hike have eased after New York Fed President John Williams signaled there was no rush to raise rates again.