Shares of credit card giant American Express (AXP 1.39%) plunged 7.5% on Monday as of 12:55 p.m. EDT.
It's unusual for such a big and seemingly strong company as American Express to fall this much on a day with no company-specific news.
However, fears over artificial intelligence disruption hit the financial sector hard today, mainly due to a post on X (formerly Twitter) by a highly followed account. In addition, hopes of near-term interest rate cuts were dashed as a result of a Fed official's commentary, which also likely played a hand in today's pullback.
NYSE: AXP
Key Data Points
Citrini sinks the markets, with help from Waller
Over the weekend, an X account called "Citrini," a financial research account with over 150,000 followers, posted a piece which detailed a highly negative artificial intelligence economic disruption scenario. In the piece, Citrini lays out a plausible mid-2028 scenario in which the economy plunges into recession, with 10%-plus unemployment, primarily due to AI eliminating the need for white-collar workers. Since consumer spending accounts for 70% of U.S. gross domestic product, recession would likely follow in that scenario, despite "productivity" gains from AI.
As well all know, recessions aren't very good for financial stocks, especially those tied to spending and lending, such as American Express.
In addition to Citrini's doomsday speculation, there were other negatives for financial stocks today, but ironically, in the opposite direction.
Despite fears that AI will take away jobs, last month's jobs report actually beat expectations. Today, Federal Reserve Governor Chris Waller said that if February's jobs report also comes in strongly, it would make the case for holding interest rates steady. Previously, Waller had forecast more cuts to the Federal Funds Rate in light of anemic jobs growth toward the end of last year.
Financial stocks tend to rise when the Fed cuts short-term rates, at least outside of recessions. This is because lower near-term rates lower financial stocks' cost of lending and tends to boost economic growth, which increases lender margins, all else being equal.
Image source: Getty Images.
Panic or buying opportunity?
Before everyone dumps stocks on the Armageddon-like scenario Citrini published this weekend, one should also note the counterarguments some other prominent commentators are making today. After all, it is difficult to envision such negative AI disruption without a robust government or Fed policy response. Furthermore, others have expressed skepticism that AI will be that disruptive so quickly, especially given today's bottlenecks in memory, power, and chip fabrication space.
Nevertheless, investors are "de-risking" today, especially given that stock valuations are generally at historically high levels. While every investor needs to account for their own risk tolerance based on near-term financial needs, panic has generally never been a sound investing strategy.
Nevertheless, the AI story is clearly worth monitoring. Still, investors should follow actual evidence of it happening, not speculation from a single anonymous X account.
