(Feb 6): Another burst of heavy selling pummelled software stocks and crypto, with weak jobs data exacerbating an equity rout spurred by concern over the impact of artificial intelligence on valuations. Bitcoin took one of its biggest tumbles yet. In late hours, Amazon.com Inc plunged after its results.
Stocks extended a slide from near-record levels, with the S&P 500 falling 1.2%. The Nasdaq 100 saw its worst three-day rout since April’s meltdown. The most-popular digital token tumbled to around US$64,000 ($81,553.28) in a sell-off that cut its value by nearly half since October. Treasuries climbed, sending two-year yields to the lowest in almost a month. Silver plummeted 16%.
A recent drop in all things related to AI coincided with persistent fears about whether massive investments in the technology will pay off. Amazon said it intends to spend billions more than expected on data centres, chips and other equipment. Microsoft Corp and Alphabet Inc, which reported results earlier, also slumped on spending plans.
The latest selling episode started to put a visible dent in equity benchmarks whose ascent had pushed valuations to some of the highest levels since the 2000 dot-com peak. The Nasdaq 100 has seen more than US$1 trillion wiped out since Federal Reserve policymakers signalled last week reluctance to lower rates again anytime soon.
While losses in previous sessions were confined mostly to growth sectors, Thursday saw a broadening of selling pressure, with nine of 11 major industry groups in the S&P 500 retreating. Its equally weighted version — one that strips out market value biases — dropped from an all-time high.
“It’s been a tough week for investors who were heavily exposed to the parts of the market that led the upside,” said Mona Mahajan at Edward Jones. “Technology and AI come to mind, but more recently we’ve also seen gold and precious metals sell off, as well as bitcoin and the broader crypto space.”
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Bets on economic resilience have recently fueled gains in companies that tend to benefit from improving growth prospects, but the latest data underscored the fragility of the labour market.
US job openings unexpectedly fell in December to the lowest since 2020 and layoffs edged up. Companies announced the largest number of job cuts for any January since the depths of the Great Recession in 2009 while jobless claims rose more than forecast last week.
“The latest labour figures reiterate that the US jobs market is not firing on all cylinders, a risk the Fed and investors will have to take seriously should further deterioration occur,” said Bret Kenwell at eToro. “Volatility could persist, particularly if near-term uncertainty increases.”
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Nearly 320 shares in the S&P 500 fell. The IShares Expanded Tech-Software Sector ETF sank 5%. Anthropic is releasing a new version of its most powerful AI model designed to carry out financial research, days after a push into legal services upended legacy software makers. A gauge of chipmakers was flat.
Bitcoin tumbled 12%. The yield on 10-year Treasuries slid nine basis points to 4.19%. The dollar added 0.3%. The pound slipped as the Bank of England’s closer-than-expected rate decision revived hopes of a cut next month. Oil fell as Iran confirmed US negotiations set for Friday.
“Another day, another set of declines in popular financial assets,” said Steve Sosnick at Interactive Brokers. “What is different this time is that today is less about rotation than outright selling. The jobs data gave economic bulls a bit of pause.”
Yet most questions Sosnick continues to receive involve the selloff in software — and the outlook for the broad tech space.
“The consensus has flipped to software companies being AI victims — not beneficiaries,” he said. “Investors were willing to pay premium multiples for software companies that could reap efficiencies from utilising AI in their coding and final products. That view abruptly reversed, with software companies now perceived as victims of AI’s disruption.”
And the second issue here, he noted, is that “crowded trades are difficult to exit.”
Recent selling has been concentrated around three major themes: crypto/payments, software that could be undercut by AI, and AI buildout plays specifically, according to Bespoke Investment Group strategists.
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“Whenever a wave of extreme selling hits the market, investors with a value or contrarian bent will start wading through the carnage to look for longs,” they said. “These proverbial babies who have been thrown out with the bathwater can prove great trades long-term, even if investors stepping up to buy huge waves of red have to stomach volatility in the meantime.”
Of course, selloffs happen for a reason, so sometimes those longs are stopped out long before any rebound, the Bespoke strategists warned.
“We view the weakness as part of a valuation reset across growth sectors, one that, given tech’s substantial index weight, is dragging on broader market performance,” said Angelo Kourkafas at Edward Jones.
Historical episodes of major disruption risk suggest that share price stabilisation will require stability in the earnings outlook, according to Ben Snider at Goldman Sachs Group Inc.
“In this case, the uncertainty around the eventual impact of AI means near-term earnings results will be important signals of business resilience, but in many cases insufficient to disprove the long-term downside risk,” he said.
There’s no doubt that AI will be making major inroads, but at the moment, the unpredictability of how fast it will actually ramp into profits is clearly bringing near-term volatility, according to Louis Navellier at Navellier & Associates.
With Thursday’s rout, the S&P 500 briefly breached its average price of the past 100 days, a line that has acted as a support level since May, according to market technicians.
“The S&P 500 bounced strongly off that line in November,” said Matt Maley at Miller Tabak & Co. “So if a meaningful drop below that line happens this time, that would raise some warning flags.”
Meantime, bitcoin tumbled as the unwinding of leveraged bets and broader market turbulence deepened a selloff that has wiped out all of the gains since President Donald Trump’s election set off a speculative rush into cryptocurrencies.
The downturn has marked an abrupt retreat from bitcoin’s meteoric rise through much of last year. The market started cracking this month as rising geopolitical tensions sent tremors across global financial markets and curbed risk taking. That sparked bitcoin’s precipitous decline from mid-January and set off a self-reinforcing cycle of selling as funds liquidated assets to meet redemptions and unwind leveraged bets.
“Volatility echoed in areas that have been the beneficiary of retail investor attention and leverage, including bitcoin,” said Mark Hackett at Nationwide.
John Roque at 22V Research frames it in cycles. Bitcoin has lived through five substantial bear markets since 2011, with an average drawdown of 80%. The smallest of those came in at 72%. If this cycle hits that threshold, the token would fall to about US$35,200. For now, he’s maintaining a target of US$60,000 — until and unless that point is also breached.
Uploaded by Isabelle Francis
