Time Is a Flat Circle. The combo of prominent doomsayers and a looming Fed meeting put a dent in AI equities on Monday. Many stocks outside of tech actually gained ground, but given the sector's outsized position in major indexes, its selloff carried the day.

The Dow Jones Industrial Average lost 0.3% while the S&P 500 fell 0.5% and the Nasdaq Composite ended 0.6% lower.

The declines were sparked by AI leaders who are publicly announcing that it's time to pump the brakes on the technology's development. That may be prudent for the world, but not necessarily bullish for stocks, given how the trillions in AI-related spending has bolstered the market. The natural concern is that "efforts to pace the development of AI models raise questions about the sustainability of AI capex," writes Ulrike Hoffmann-Burchardi, CIO Americas and Global Head of Equities, UBS Chief Investment Office.

While high-profile calls for regulation or restrictions are a problem for AI stocks, it's not the only headwind; Wednesday's Federal Open Market Committee meeting could bring more bad news. "AI has undoubtedly been an important driver of recent economic strength, but it is also increasingly sensitive to interest rates," notes Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company. "A key question for investors is whether the current pace of AI investment can continue if borrowing costs move meaningfully higher."

AI stocks aren't alone when it comes to being sensitive to interest rates; equities in general tend to be reactive to the aforementioned borrowing costs, and potential chilling effect on demand. And investors are currently betting that the the Fed will raise rates when the FOMC announces its monetary policy decision. The economy that has remained resilient this year, though, which is a hopeful thought for anyone dreading a rate hike.

"[T]he still-strong labor market may give officials some cover to move rates higher if they choose to do so this week," notes Ameriprise Chief Market Strategist Anthony Saglimbene.

Any spoonful of sugar to help the medicine go down is welcome.

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The Hot Stock: CrowdStrike Holdings, Inc. Class A +13.9% The Biggest Loser: Corning -13.7%

Best Sector: Communication Services +2.8% Worst Sector: Information Technology -1.7%

Poor Service

There's plenty of important news to come this week, from the Fed's interest rate decision to several housing data points. But don't forget about retail sales.

On Wednesday, the Census Bureau is slated to report retail and food-service sales for August. Consensus calls for an increase in overall sales and core sales, which exclude gas and automobiles.

Retailers' second-quarter earnings season has mostly wrapped up, with downbeat results from athletic-related companies, even as investors cheered Target's ongoing comeback and Abercrombie & Fitch's strong results. We've also written previously about how difficult things have been for food retailers as they grapple with pressure to lower costs in an effort to win back slackening demand from consumers.

We haven't touched as much on restaurants, but it's worth noting what a difficult year they've had. McDonald's, WingStop, Domino's Pizza, Yum! Brands, Wendy's, Cava Group, Dutch Bros., Shake Shack and Papa John's aren't just underperforming the broader market in 2026, they're well in the red year to date.

In many cases, restaurants are dealing with some of the same problems as packaged food makers: Higher prices (for ingredients, and on the finished entrées), increased GLP-1 use, food-borne illness outbreaks and greater interest in wellness are all headwinds. Yet food service companies are also dealing with upward pressure on labor costs and the need for innovation: You might be happy to buy the same peanut butter and jelly at the supermarket each week, but probably want more excitement when you go out for a meal.

Add it all together and restaurants are fighting an uphill battle. Many people are choosing to stay away to save money, cook healthier meals at home, or spend money on other experiences like travel.

There have been some success stories, of course. Starbucks and Burger King owner Restaurant Brands International are both up double digits. Barron's senior technical analyst Doug Busch says both Chipotle Mexican Grill and Red Lobster owner Darden Restaurants might also be attractive now.

Chipotle, which has been roughly flat in 2026, has seen its 200-day simple moving average start to slope higher for the first time in more than a year, and it's sporting a bullish inverse head and shoulders pattern, he says. Darden, which has done well this year, showed excellent relative strength during Monday's selloff.

Winners aside, the industry as a whole has had a tough run recently, and consumers may continue to prioritize allocating their discretionary dollars elsewhere.

The Calendar

Forgent Power Solutions and Trip.com report quarterly results tomorrow.

-Dan Lam

What We're Reading Today

Microsoft Is Setting Limits for Its AI Models. It Isn't Slowing Development.

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China's Biotechs Are Hot. Big Pharma Is Paying Billions to Ride the Boom.

Japan's Rate Decision Could Have Big Implications for the U.S.

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