By Sinéad Carew
Sept 22 (Reuters) - The S&P 500 Financial index and the benchmark's bank sector were under pressure on Tuesday as investors worried about competition from artificial intelligence and uncertainty around AI-related initial public offerings, along with moves in the bond market that potentially point to softer conditions ahead.
The benchmark's broader financial index finished down 2% on Tuesday with money managers Charles Schwab, Ameriprise Financial and Raymond James among the biggest
decliners. Schwab fell 6.1% while Ameriprise shares fell 4.4% and Raymond James shares lost more than 3%. Meanwhile, the S&P 500 bank index finished down 3%.
With Muse, an AI agent from Meta Platforms, recently moving past ChatGPT as the most downloaded free app for iPhones, Macrae Sykes, portfolio manager at Gabelli Funds, said that investors have started to become concerned about potential competition from the app in the wealth management industry.
"There's worries about AI disruption to traditional businesses," said Sykes, who manages investments in the financial industry. "Clearly there's going to be some arguments both around the benefits and the disruption of AI tools and what it all means for the incumbents, but I think today is another sell-without-regard reaction."
Sykes also highlighted moves in the US bond market where the yield curve between short- and long-dated bonds has been flattening, which could eat into bank returns.
A closely watched part of the Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of the health of economic expectations, hit its flattest level since March 2025 earlier on Tuesday. It was last at a positive 21 basis points but was as low as 17.90 basis points earlier on Tuesday. As traders have increased their bets on Federal Reserve rate hikes, the curve, which was at 55.5 on August 18, has been flattening gradually.
"There's a tipping point between raising rates reflecting a strong economy and raising rates and having the effect of slowing the economy," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
Gabelli's Sykes also pointed to concerns about the market for initial public offerings after a New York Times report on Monday about delays in initial public offerings for companies tied to the data centers supporting AI.
SB Energy, a subsidiary of the Japanese conglomerate SoftBank, filed paperwork recently for a US IPO. But the data center developer, which had originally planned an IPO for this month, has postponed the launch of its roadshow to market the offering to investors, a source familiar with the situation told Reuters. SB Energy declined to comment.
Nuclear services company Holtec last week suspended its planned US IPO.
Still, Sykes argues that the outlook for bank stocks is strong.
"The short-term noise does not affect our appreciation for the long-term outlook," he said. "The outlook in general for banks is pretty good. There's a good economy and good employment. The fundamentals are good."
(Reporting by Sinead Carew, Echo Wang, editing by Colin Barr and Aurora Ellis)
