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US software stocks were hit with a fresh burst of selling on Monday as investors fretted that AI will upend the industry, in a sell-off that cascaded to private capital groups that have lent heavily to the sector.

Wall Street’s S&P 500 index fell 1.1 per cent by midday in New York. The tech-heavy Nasdaq Composite lost 1.2 per cent.

Software stocks that have been hit hard in recent weeks by fears around AI disruption were among the worst performers on Monday, with Workday, CrowdStrike and Datadog all down more than 8 per cent. 

US private capital giants, which have extended loans to software companies and are also holders of their equity, were caught up in Monday’s sell-off, days after Blue Owl sent shivers through the industry by permanently halting investor withdrawals in one of its funds.

Ares, KKR, Apollo and Blackstone all fell more than 6 per cent, extending their poor start to the year, as concerns mount that market volatility caused by worries around AI disruption could slow fundraising and delay asset sales. Blue Owl slid 5 per cent, bringing its fall for the year to more than 30 per cent.

“Coding has become the first domain where AI demonstrably outperforms humans at scale and as a result, the software sector . . . has emerged as the most immediate pressure point,” said UBS analysts led by Samantha Meadows.

She added: “We see the highest disruption risk [from AI software] in leveraged loans and private credit where tech represents a larger share of holdings.”

Shares in large US banks also came under selling pressure, with JPMorgan Chase, Bank of America, Citigroup and Wells Fargo all falling more than 4 per cent.

Investors shifted into defensive positions as riskier sectors fell. The communications sector, which is coveted for its consistent dividends, was among the only gainers on Monday.

US government debt also rose in price, sending yields falling. Yields on 10-year Treasuries fell 0.05 percentage points to 4.04 per cent.

Gold, typically a haven asset, rallied 1.7 per cent to $5,191 a troy ounce.

Tariff concerns bubbled away in the background. US President Donald Trump responded to Friday’s ruling from America’s Supreme Court that his previous trade policy was illegal by announcing a flat-rate tariff on the country’s trading partners, which is set to come into force on Tuesday.

Analyst projections suggest that the latest announcement will mean a lower overall effective tariff rate. Goldman Sachs economists wrote that the new levies will reduce the US’s effective tariff rate by just over 1 percentage point compared with before the Supreme Court decision.

But a renewed sense of policy chaos and the potential for retaliation by US trade partners weighed on stock markets, analysts said.

“Uncertainty is back,” said Carsten Brzeski, global head of macro at Dutch bank ING, adding that “the risk of escalation [between the US and its trading partners] is now higher than it was a year ago”.

The US dollar weakened as much as 0.5 per cent against a basket of its peers before paring losses to trade 0.2 per cent lower.

Across the Atlantic, Germany’s Dax fell 1.1 per cent, while the broader Stoxx Europe 600 was down 0.5 per cent.

Additional reporting by Joe Leahy in Beijing and Ian Smith in London