US equities experienced a downturn on Thursday, extending a recent period marked by choppiness, as Wall Street grappled with persistent unease surrounding artificial intelligence, while economic figures suggested a softening labor market over the preceding couple of months.
The Dow concluded the day lower by 593 points, or 1.2%. The S&P 500 dipped 1.23%, and the tech-heavy Nasdaq Composite fell by 1.59%.
The Nasdaq posted its worst three-day slide since April, as investors confront the prospect of AI reshaping the software industry. The index has retreated approximately 6% from its all-time peak reached in the previous October. The exchange-traded fund tracking the software sector dropped by 4.97% on Thursday, marking its eighth consecutive session of losses.
“The immediate catalyst was the release of the Anthropic plugin, but investors have been contending with software-related issues for several months, as AI is perceived to be reducing the need for programmers and impacting the revenues of numerous firms,” noted Mohit Kumar, a strategist at Jefferies, in a memo.
“The market is currently in a ‘shoot first and ask questions later’ phase,” Kumar commented. “Concerns are also emerging regarding private equity and private credit firms, given their substantial involvement in the sector.”
Shares of Blue Owl (OWL), a private credit company with some holdings in software businesses, fell by 3.57% on Thursday, concluding a streak of 11 straight trading sessions in the red.
While the focus remains on AI’s impact on software, Wall Street is deep into corporate earnings season, and apprehension lingers regarding how profitable the major technology firms’ bets on the AI surge will prove to be.
Microsoft (MSFT) stock slipped 4.95%, trading lower in five of its last six sessions, following the tech titan’s earnings report a week prior.
Alphabet (GOOG) shares declined by 0.6% subsequent to announcing earnings, amid plans to increase investment in data centers and AI-related projects.
Risk-off sentiment also permeated the cryptocurrency market. Bitcoin plummeted by roughly 14% over the last day, falling below $63,000, hitting its lowest point in 15 months. Bitcoin has now erased around 50% of its value since attaining its peak above $126,000 in the previous October, completely wiping out all gains achieved since President Donald Trump’s victory in the US presidential election.
Gold, traditionally viewed as a safe haven during uncertainty, tumbled by 2.6%. Silver dropped by 14%, continuing its recent turbulent performance.
“When you witness declines like these, they are striking, they are painful, but in a way, this is the natural consequence of hyper-aggressive speculation,” Steve Sosnick, Chief Market Technician at Interactive Brokers, told CNN.
“When trades become heavily crowded in a very tight timeframe, they have an unpleasant way of unwinding,” Sosnick added.
Equities extended their losses Thursday morning after two separate economic reports painted a picture of a fragile job market. US Treasury bonds rallied, pushing yields lower.
The monthly Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings in December fell to their lowest level since 2020, according to data from the Bureau of Labor Statistics.
“The latest labor figures confirm that the US job market is not operating at full capacity—a risk that the Fed and investors will have to take seriously should deterioration continue,” stated Brent Cookenwell, US Investment Analyst at eToro, in a note.
“We are seeing volatility building across various asset classes, including stocks, crypto, and precious metals,” Cookenwell observed.
In recent weeks, the stock market had benefited from “rotation trading”—investors seeking opportunities in sectors outside of technology. However, the weak JOLTS report on Thursday delivered a significant blow to sentiment, putting even more stocks underwater. Over 60% of S&P 500 constituents closed lower.
“We’ve been enjoying this rotation trade, built on the premise that people favor more economically sensitive stocks. And now we’ve been jolted, pardon the pun, by bad economic news at a very inopportune moment,” Sosnick of Interactive Brokers explained.
This softer-than-expected economic data followed figures from Challenger, Gray & Christmas showing that the prior month was the worst January for layoff announcements since 2009.
“We are still seeing signs of stabilization in the labor market, but we are definitely on the edge,” declared Соnali Basak, Chief Investment Strategist at iCapital, to CNN. “We are definitely watching the data closely.”
Wall Street’s fear gauge, the VIX, climbed 17% to surpass the 20-point mark—a threshold signaling heightened market turbulence. The CNN Fear & Greed Index hovered in the “Fear” territory.
The data emerged ahead of the awaited January employment report, which had been postponed due to the partial government shutdown.
“With the employment report pushed out until next week, anxiety surrounding labor conditions is fueling today’s cautious tone,” said Shauna Smith, Senior Investment Strategist at Global X ETFs, to CNN.
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