Risk-Off Selling Returns as AI Disruption Fears Hit Tech and Cyclicals

Stocks endured their most difficult session of the week as renewed selling in software and mega-cap names triggered a broad risk-off move across the market. The S&P 500 fell 1.6%, the Nasdaq Composite dropped 2.0%, and the Dow Jones Industrial Average declined 1.3%. Weakness extended beyond large caps, with the Russell 2000 sliding 2.0% and the S&P MidCap 400 losing 1.4%.

Technology led the downturn from the outset. The information technology sector sank 2.7%, finishing as the day’s worst performer as pressure intensified across software and hardware names.

Software stocks were at the center of the selloff. AppLovin plunged despite reporting strong earnings and guidance, highlighting investor concerns about valuations and the broader impact of AI disruption on traditional software models. The software ETF declined sharply, extending its recent slide.

Semiconductors also weakened, with the chip index falling 2.5%. Memory producers such as Sandisk and Micron managed gains early but finished well below intraday highs as selling spread across the group.

Hardware companies faced additional pressure following cautious commentary from Cisco, which warned that rising memory costs could compress margins. The warning weighed on peers including Dell Technologies and Apple, amplifying the sector’s losses.

Unlike earlier sessions this year, the selloff was not offset by strength in cyclical sectors. Energy, the market’s top performer year-to-date, fell 2.2% as oil prices dropped following signs of potential progress in U.S.-Iran negotiations.

Financials also struggled, declining 2.0% and extending their weekly losses. Robinhood Markets continued to slide after earnings, while banking stocks faced persistent pressure. Concerns about AI-driven disruption to financial services provided only limited buying support in previously beaten-down names.

The AI disruption theme also weighed on industrials, which fell 1.2%. Logistics companies such as C.H. Robinson and Expeditors International posted steep losses as investors reassessed the sector’s long-term outlook.

Mega-cap weakness dragged down other growth-oriented sectors as well. Consumer discretionary and communication services both declined sharply, with Amazon extending its post-earnings slump and weighing on sentiment across large-cap growth stocks.

Defensive areas offered the only refuge. Utilities rose 1.5%, led by a strong post-earnings move in Exelon. Consumer staples gained 1.2%, supported by continued strength in Walmart, which remains one of the year’s standout performers. Real estate also posted a modest gain.

Overall, the session marked a clear shift back to defensive positioning as concerns about AI-driven disruption combined with ongoing weakness in mega-cap technology. Despite last week’s rebound and several relatively calm sessions, the renewed selloff underscored that underlying headwinds remain firmly in place.

Attention now turns to the upcoming inflation data, with the January CPI report expected to serve as the next major catalyst. With volatility rising and leadership uncertain, markets appear poised for continued turbulence in the near term.

Our FTinvest 11 model portfolio declined 0.50% to close at 1,034.31, easing back from yesterday’s all-time high of 1,039.51. The pullback reflects a modest pause after a strong streak of record-setting sessions.

Despite today’s dip, the portfolio remains near peak levels and continues to demonstrate resilience. With its value-based strategy and disciplined management, FTinvest 11 remains well-positioned as mid-February unfolds.