(Feb 4) : A tech selloff dragged down stocks from near-record levels amid a rotation into more economically sensitive industries. A flare-up in geopolitical risks lifted oil while gold bounced after a historic rout. Bitcoin hit the lowest since President Donald Trump’s election victory.
The plunge in software makers weighed on trading as Anthropic’s automation tool heightened concerns their core businesses are at risk. The S&P 500 fell 0.8% and the Nasdaq 100 slid 1.6%. In late hours, Advanced Micro Devices Inc. gave a disappointing forecast. Energy firms joined crude higher as the US Navy shot down an Iranian drone headed toward an aircraft carrier in the Arabian Sea.
Despite losses in major benchmarks, most shares in the S&P 500 actually rose. FedEx Corp. - an economic barometer - extended a record-breaking rally. Walmart Inc. topped US$1 trillion.
“Rotation is occurring,” said Steve Sosnick at Interactive Brokers. “The tricky question is whether it is a benign reallocation of exposure or a sign of some underlying instability.”
Bets on AI companies have dominated the US equity market for three years, but a growing number of investors are now wagering that run, led by the “Magnificent Seven” megacaps, is giving way to broader market participation. In fact, a violent rotation has taken place in 2026, with value shares far outpacing growth.
“Our sense is that markets are churning underneath the surface as worries over AI capital spending battle with ‘hopes and dreams’ of broadening out as a result of an accelerating US economy,” said Chris Senyek at Wolfe Research.
See also: Walmart joins US$1 tril club as tech, frugal shoppers fuel gains
In another sign of rotation, an equal-weighted version of the S&P 500 — which gives Dollar Tree Inc. as much clout as Apple Inc. —edged only mildly lower. The Russell 2000 of small firms added 0.3%. At the same time, the group of software shares in the US equity benchmark tumbled almost 4%.
The dollar dropped after notching its biggest back-to-back advance since April. Treasuries barely budged, with investors parsing the latest remarks from central bank speakers.
Federal Reserve Bank of Richmond President Tom Barkin said policy easing has bolstered the jobs market as officials now look to bring inflation back to the target. Fed Governor Stephen Miran said the absence of strong price pressures means rates need to be lowered again this year.
See also: Palantir shares rose after stronger-than-expected sales outlook
While the trend in equities remains positive, it has become somewhat more guarded with the weakness in tech, according to Louis Navellier at Navellier & Associates.
The first wave of selling was in stocks associated with legal software and data services as shares of Experian Plc, London Stock Exchange Group Plc and Thomson Reuters Corp. tumbled. Then it snowballed to include most of the software sector, pushing the iShares Expanded Tech-Software Sector ETF down about 4.5%.
Bloomberg LP, the parent of Bloomberg News, competes with LSEG and Thomson Reuters in providing financial data and news.
“Bifurcated action is characterizing today’s Wall Street trading, as tech surrenders the floor to cyclicals even as Palantir delivered a blockbuster beat-and-raise last night, which initially boosted optimism regarding AI prospects,” said Jose Torres at Interactive Brokers.
Small caps, meanwhile, are outperforming as they are relatively sensitive to economic health, he added.
“Despite elevated volatility across the macro landscape, the underlying structure of this market is clear: We are in a ‘rotational’ bull market,” said Craig Johnson at Piper Sandler. “Capital is rotating into cyclicals and value stocks.”
Optimism that the American economy is set to take off has fueled the rotation, with companies whose fortunes are closely tied to the business cycle attracting investor cash. At the same time, AI investing has become less monolithic in the tech sector, with investors starting to choose winners and losers.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
“We are shifting our tactical allocation from neutral to favoring ‘value’ over ‘growth’,” said Ed Clissold and Thanh Nguyen at Ned Davis Research. “Several of the factors we said we were watching when we moved to neutral have moved in value’s direction.”
The strategists noted that earnings growth from value stocks has exceeded expectations. While results from tech megacaps were in line or better than expected, market reaction to their spending plans varied wildly.
“We view the challenge for some ‘Magnificent Seven’ stocks as more of a valuation issue than an earnings growth issue,” they said. “If economic growth moderates in the second half of 2026 as our macro team expects, investors may return to paying a premium for companies that can deliver earnings-per-share growth.”
Given the massive capex spend by hyperscalers, the premium may be less than in 2021-2025, but we do not rule out a return to the growth premium trade later this year, which would necessitate a rotation back into growth stocks, they concluded.
“We have seen a more nuanced view of AI recently, with skepticism and optimism more balanced,” said Mark Hackett at Nationwide. “Skepticism is warranted given the enormous sums of money being spent with uncertain returns on investment, along with the greater use of debt.”
After Microsoft Corp.’s cloud revenue growth fell short of expectations, investors are now looking to Amazon.com Inc.’s and Alphabet Inc.’s results this week for insights into productivity gains, revenue generation, and margin growth, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“With continued demand, durable spending, and encouraging monetization trends, we believe AI will remain a key engine of overall equity performance,” she said. “We also expect beneficiaries to continue to broaden to the application layer of the AI value chain as well as users of the technology in other sectors.”
Her firm expects the S&P 500 to move higher, and maintains its December price target of 7,700. The gauge closed at 6,917.81 Tuesday.
“We recommend investors position for a broadening rally, favoring financials, health care, utilities, and consumer, discretionary beyond the tech sector,” Hoffmann-Burchardi said.
Last week’s tech selloff saw lofty expectations for cloud revenues – now a proxy for how well AI is being monetized – disappointed, noted Lauren Goodwin at New York Life Investments.
“We are in the earliest days of AI, and monetization of these capabilities is a moving target,” she said. “Instead of near-term AI revenues, we are looking for ongoing capex commitments from AI hyperscalers to assess the resilience of the AI boom, and we continue to see physical investment plans expand.”
Among the most-recent investments in the space, Elon Musk is combining SpaceX and xAI in a deal that values the enlarged entity at $1.25 trillion, as the world’s richest man looks to fuel his increasingly costly ambitions in AI and space exploration.
And this past Sunday, Oracle Corp. said it plans to raise US$45 billion to US$50 billion this year through a combination of debt and equity sales to build additional cloud infrastructure capacity, reflecting the scale of financing needed to feed AI’s growth.
The announcement — and a subsequent bond sale Monday — coincided with persistent fears about whether massive AI-linked investments by tech companies will pay off.
“The biggest concern about the AI revolution is that tech companies are spending hun-dreds of billions on AI infra-structure, without any guarantee that it will produce a positive ROI (Return on Investment),” said Tom Essaye at The Sevens Report.
“I’ve often compared the current AI revolution to the rollout of electricity in the country, where the industrialists of the 20th century funded the wiring of the country. Well, what if people preferred candles and didn’t buy electricity? They would have lost the equivalent of billions,” he said.
Meantime, retail traders’ appetite for US equities faces a tough test as the record buying wave that powered last month’s rally shows signs of fatigue.
January net inflows ran more than 50% above the same period last year, according to Citadel Securities data. That pace of buying from the retail crowd is difficult to maintain — particularly in February, a seasonally slower month for equities — according to Scott Rubner, head of equity and equity derivatives strategy at the firm.
“We expect global equities to rise around 10% by the end of this year, and investors who have concentrated positions in the US should benefit from diversifying into other markets,” said Mark Haefele at UBS Global Wealth Management. “Ultimately, we believe one of the most effective ways to manage macroeconomic uncertainty and market volatility is to ensure portfolio diversification.”
uploaded by Isabelle Francis
