Market Sentiment Shifts as Oil Prices Rise and AI Concerns Grow

Risk-off sentiment is building across markets due to concerns over higher crude oil prices, a more hawkish Federal Reserve and Bank of Japan outlook, and growing AI security risks.

The Federal Reserve and Bank of Japan are expected to raise interest rates by 25 basis points this week, with market-implied probabilities above 80%. The rate decisions themselves may not have as big an impact, but the guidance from Wednesday's FOMC meeting and Friday's BOJ meeting could influence the broader market direction.

The AI-related risks are becoming more concrete, with Anthropic reporting that AI-assisted, multi-agent workflows have been used in cyber operations. This has sparked calls for stronger AI oversight, which could weigh on AI-related equities and the Nasdaq through increased regulatory, valuation, and concentration risks.