Volatility Grips Wall Street as AI Anxiety Lingers: Markets Wrap

(Bloomberg) — Traders struggling to assess the outlook for artificial intelligence sent Wall Street to another volatile day, a session that saw big losses in stocks wane by midday. Bitcoin extended its February rout. Gold sank.

Following a slide that approached 1% earlier Tuesday, the S&P 500 was little changed. The US equity benchmark bounced after briefly breaching a key technical level – its average price of the past 100 days. While a closely watched gauge of chipmakers wiped out its decline, an exchange-traded fund tracking software firms slipped 2%. Financial and industrial companies rose.

The turmoil unleashed by AI reflects fears that are increasingly at odds. One is that it’s poised to disrupt entire segments of the economy so dramatically that investors are dumping the stocks of any company seen at the slightest risk of being displaced by the technology. The other is a deep skepticism that the hundreds of billions of dollars spent in AI will deliver big payoffs anytime soon.

In what’s turning out to be a great quarter for corporate earnings growth, mentions of AI disruption on management calls almost doubled compared to the previous quarter, a Bloomberg News analysis of transcripts shows. While the technology hasn’t yet noticeably reduced earnings estimates, investors aren’t waiting around and instead are selling any company perceived to be at risk.

“The market is still close to records highs, but it may not feel that way to some investors because of the sharp selloffs that seem to derail upswings almost as soon as they begin,” said Chris Larkin at E*Trade from Morgan Stanley. “If that theme persists, it could result in a bumpy road for the market, even if the overall trend is to the upside.”

Traders this week will also be on the lookout for economic data and minutes from the Federal Reserve’s January meeting for insights into the timing for rate cuts. Fed Bank of Chicago President Austan Goolsbee told CNBC there’s potential for more reductions this year, if inflation continues to return towards the central bank’s 2% target.

About 260 shares in the S&P 500 rose, with the gauge hovering near 6,840. The yield on 10-year Treasuries was little changed at 4.05%. Bitcoin dropped to around $67,500. The dollar rose 0.2%. The pound slid as data showing UK unemployment at a five-year high prompted traders to boost bets on rate cuts.

Oil slipped on signs that the US and Iran have made progress in nuclear talks. Gold sank below $4,900 an ounce, with much of Asia, the top consuming region, closed for the Lunar New Year. Silver also retreated.

“We need tech/AI/Mag 7 to stabilize, and need to see less sell first/ask questions later behavior from investors,” said Sameer Samana at Wells Fargo Investment Institute.

Many big tech and certain AI-related stocks have taken a hit as investors continue to question the likely return on investment, noted David Morrison at Trade Nation. He noted that the S&P 500 remains stuck under 7,000, with investors appearing “wary” of adding to their exposure at current levels.

“First, the AI-blamed selloff started with the software industry, triggering renewed fears that AI companies will adversely affect their businesses,” said Sam Stovall at CFRA. “Soon after, the sector version of ‘Whac-a-Mole’ kicked in, initiating rolling corrections in such groups as transportation, wealth management, insurance, and commercial real estate in succession, causing investors to wonder, ‘Where next?’.”

Stovall cautions investors against getting caught up in the emotional instability generated by these selloffs.

“They remind us that AI will indeed offer cost savings from increased efficiencies and depth of analysis, but these should aid companies by making them nimbler and more profitable,” Stovall added. “Today, the equity markets are going through a much-needed digestion of gains.”

A record number of investors say companies are spending far too much, according to Bank of America Corp.’s latest fund manager survey. While investors participating in the survey are the most bullish they’ve been since June 2021, about 35% warned that corporations are overinvesting, strategist Michael Hartnett wrote in a note. They’re also cutting their exposure to tech stocks.

A quarter of participants in the latest BofA survey saw an “AI bubble” as the top tail risk to markets, while 30% said capital expenditure on AI by the big tech companies was the most likely source of a credit crisis.

“A few months ago, the market debated whether AI was real,” said Jean Boivin at BlackRock Investment Institute. “Today, it’s seen as an active threat to business models. We believe the hunt to sort the winners and losers reinforces AI’s massive buildout – and the borrowing spree by to finance it.”

Boivin says the market has been “laser-focused” on identifying companies exposed to AI disruption – and sorting out which ones it thinks will be able to evolve and adapt.

“We are still firmly in the AI buildout phase. The mega cap tech companies are spending heavily on chips, data centers and power infrastructure. This is a key reason why we still like infrastructure,” Boivin noted. “What has changed is the market’s focus: it now asks how AI adoption will translate into revenues and profits. This sorting of winners and losers means it’s prime time for active investing.”

Meantime, debt investors are worried that the biggest tech companies will keep borrowing until it hurts in the battle to develop the most powerful AI.

That fear is breathing new life into the market for credit derivatives, where banks, investors and others can protect themselves against borrowers larding on too much debt and becoming less able to pay their obligations. Credit derivatives tied to single companies didn’t exist on many high-grade Big Tech issuers a year ago, and are now some of the most actively traded US contracts in the market outside of the financial sector, according to Depository Trust & Clearing Corp.

While macro conditions have momentarily taken a back seat to AI disruption, the two are inseparable in the long term. Thus, thinking about what AI means for terminal values at a macro level is just as important to evaluating the investment outlook, according to Jason Draho at UBS Global Wealth Management.

“The debate over who will be the corporate beneficiaries and losers from AI shouldn’t obscure the potentially large macro implications,” he said. “Higher productivity, lower inflation, and labor market disruptions are all possible. While the terminal value for some companies may indeed be zero because of AI, the ‘terminal GDP’ for the entire US economy is likely to be a lot larger in a decade because of that same AI disruption than had it not occurred.”

In other words, the overall economic pie will be bigger, Draho noted.

“The critical question for asset allocation is how will that pie be divided across society, and asset classes,” he said. “Even if AI doesn’t end up being particularly disruptive for labor markets, capital (i.e., investors) are still likely to get many of the benefits. That big picture conjecture on the division of macro terminal values is important to keep in mind while wondering which sector might be impacted next.”

Corporate Highlights:

Anthropic PBC’s talks about extending a contract with the Pentagon are being held up over additional protections the artificial intelligence company wants to put on its Claude tool, a person familiar with the matter said. Citigroup Inc. shares have room to run due to improving profitability at the bank, Morgan Stanley analysts said after the stock hit a 17-year high this month. Warner Bros Discovery Inc. has agreed to reopen negotiations with rival Hollywood studio Paramount Skydance Corp. after the suitor proposed raising its bid and sweetened other terms of its offer, setting the stage for a renewed showdown with Netflix Inc. UnitedHealth Group Inc.’s chairman and chief executive officer, Stephen Hemsley, has invested in health-care startups for years, creating the potential for conflicts of interest, according to The Wall Street Journal. Gemini Space Station Inc., the crypto exchange founded by Cameron and Tyler Winklevoss that went public just before Bitcoin’s plunge, said three top executives left the company in a sweeping leadership shakeup that followed a broad round of layoffs earlier this month. AMC Entertainment Holdings Inc. is seeking nearly $2.5 billion from credit investors to refinance existing debt. General Mills Inc. lowered its fiscal 2026 sales outlook, citing a more challenging consumer environment. Genuine Parts Co. will split into two publicly traded companies following a review of options for its automotive and industrial business lines. Danaher Corp. agreed to buy Masimo Corp., in a deal with an enterprise value of about $9.9 billion, allowing it to gain a foothold in the medical supply business. Blackstone Inc. is in advanced talks to acquire residential services provider Champions Group for about $2.5 billion, according to people familiar with the matter. Tech enthusiasts’ craze for artificial intelligence program OpenClaw has sparked a blistering rally in shares of Raspberry Pi Holdings Plc, the company that makes one of the simplest forms of personal computers. Adani Group plans to invest $100 billion by 2035 to develop green-powered, AI-ready data centers as billionaire Gautam Adani seeks to capitalize on India’s bid to emerge as a hub for artificial intelligence and cloud computing. Bayer AG is preparing to announce a $10.5 billion settlement push to resolve current and future cancer lawsuits over its top-selling Roundup weedkiller, according to people familiar with the plan. Emirates Chief Financial Officer Michael Doersam, one of the senior executives who helped transform the Dubai carrier into the world’s biggest international airline, will leave his job by the end of June. Some of the main moves in markets:

Stocks

The S&P 500 rose 0.1% as of 12 p.m. New York time The Nasdaq 100 fell 0.1% The Dow Jones Industrial Average rose 0.2% The Stoxx Europe 600 rose 0.4% The MSCI World Index was little changed Bloomberg Magnificent 7 Total Return Index was little changed Philadelphia Stock Exchange Semiconductor Index rose 0.2% IShares Expanded Tech-Software Sector ETF fell 2.2% The Russell 2000 Index fell 0.1% S&P 500 Equal Weighted Index fell 0.2% Currencies

The Bloomberg Dollar Spot Index rose 0.2% The euro fell 0.2% to $1.1831 The British pound fell 0.7% to $1.3538 The Japanese yen was little changed at 153.57 per dollar Cryptocurrencies

Bitcoin fell 1.9% to $67,484.38 Ether fell 0.9% to $1,979.62 Bonds

The yield on 10-year Treasuries was little changed at 4.05% Germany’s 10-year yield declined two basis points to 2.74% Britain’s 10-year yield declined two basis points to 4.38% The yield on 2-year Treasuries advanced three basis points to 3.43% The yield on 30-year Treasuries declined one basis point to 4.68% Commodities

West Texas Intermediate crude fell 0.8% to $62.40 a barrel Spot gold fell 2.4% to $4,869.94 an ounce ©2026 Bloomberg L.P.