Stocks Decline Amid AI Fears and Geopolitical Risks

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.28%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.54%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.41%.  March E-mini S&P futures (ESH26) fell -0.25%, and March E-mini Nasdaq futures (NQH26) fell -0.40%.

Stock indexes settled lower on Thursday, led by losses in chipmakers and AI-infrastructure stocks, amid renewed caution over the outlook for artificial intelligence.  Concerns remain that AI could disrupt entire sectors of the economy and that the huge investments in the technology may not pay off.  Stocks also face some negative carryover from Wednesday, when the minutes of the Jan 27-28 FOMC meeting stated that “several” policymakers suggested the Fed may need to raise interest rates if inflation stays above its goal. 

Geopolitical risks also undercut stocks on Thursday.  WTI crude oil (CLH26) rose more than +1% to a 6.5-month high on comments from the head of the United Nations nuclear watchdog, who said the US military buildup in the Middle East means Iran’s window to reach a diplomatic agreement over its nuclear activities is at risk of closing.  Also, President Trump said Thursday that “really bad things will happen” if there is no deal with Iran.

Thursday’s US economic news was mixed for stocks.  On the positive side, weekly jobless claims fell to a 5-week low, and the Feb Philadelphia business outlook survey unexpectedly rose to a 5-month high.  Conversely, the Dec trade deficit widened more than expected to a 5-month high, and Jan pending home sales unexpectedly declined.

Hawkish comments on Thursday from Fed Governor Stephen Miran were bearish for stocks, as he said he now sees a "less accommodative" interest rate path, given that US employment has held up better than anticipated and goods inflation has been more stubborn.

US weekly initial unemployment claims fell -23,000 to a 5-week low of 206,000, showing a stronger labor market than expectations of 225,000.

The US Feb Philadelphia business outlook survey unexpectedly rose +3.7 to a 5-month high of 16.3, stronger than expectations of a decline to 7.5.

The US Dec trade deficit was -$70.3 billion, wider than expectations of -$55.5 billion and the biggest deficit in 5 months.

US Jan pending home sales unexpectedly fell -0.8% m/m, weaker than expectations of a +2.0% m/m increase.

The market’s focus is on corporate earnings results and economic news. On Friday, Q4 GDP is expected to expand by +3.0% (q/q annualized), and the Q4 core price index is expected to climb by +2.6%.  Also, Dec personal spending is expected to rise by +0.4% m/m and Dec personal income is expected to be up +0.3% m/m.  In addition, the Dec core PCE price index (the Fed’s preferred inflation gauge) is expected to be up +0.3% m/m and +2.9% y/y.  The Feb S&P manufacturing PMI is expected to slip by -0.1 to 52.3, and Dec new home sales will be released.  Finally, the University of Michigan Feb consumer sentiment index is expected to be revised slightly lower to 57.2 from 57.3.

Q4 earnings season is nearing its end, with more than three-quarters of the S&P 500 companies having reported earnings results.  Earnings have been a positive factor for stocks, with 74% of the 418 S&P 500 companies that have reported beating expectations.  According to Bloomberg Intelligence, S&P earnings growth is expected to climb by +8.4% in Q4, marking the tenth consecutive quarter of year-over-year growth.  Excluding the Magnificent Seven megacap technology stocks, Q4 earnings are expected to increase by +4.6%.

The markets are discounting a 6% chance for a -25 bp rate cut at the next policy meeting on March 17-18.

Overseas stock markets settled mixed on Thursday.  The Euro Stoxx 50 closed down -0.72%.  China’s Shanghai Composite is closed for the week-long Lunar New Year holidays.  Japan’s Nikkei Stock 225 closed up +0.57%.

Interest Rates

March 10-year T-notes (ZNH6) on Thursday closed up +0.5 of a tick.  The 10-year T-note yield fell -1.2 bp to 4.071%.  T-notes recovered from early losses on Thursday and settled slightly higher as heightened geopolitical risks with Iran knocked stocks lower and boosted safe-haven demand for government debt.

T-notes initially moved lower on Thursday after better-than-expected US economic news showed weekly jobless claims fell to a 5-week low, and the Feb Philadelphia business outlook survey unexpectedly rose to a 5-month high. T-notes also have negative carryover from Wednesday’s hawkish minutes of the Jan 27-28 FOMC meeting, where “several” policymakers suggested the Fed may need to raise interest rates if inflation stays above their goal.  In addition, Thursday’s jump in WTI crude oil by more than +1% to a 6.5-month high lifted inflation expectations, a bearish factor for T-notes. 

European government bond yields were mixed on Thursday.  The 10-year German bund yield rose +0.4 bp to 2.743%.  The 10-year UK gilt yield fell -0.6 bp to 4.368%.

The Eurozone Feb consumer confidence index rose +0.2 to -12.2, weaker than expectations of -12.0.

Swaps are discounting a 2% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.

US Stock Movers

Chipmakers and AI-infrastructure stocks were under pressure on Thursday, dragging the broader market lower.  Western Digital (WDC) closed down more than -4%, and Seagate Technology Holdings (STX) closed down more than -3%.  Also, Microchip Technology (MCHP), NXP Semiconductors NV (NXPI), Intel (INTC), and Texas Instruments (TXN) closed down more than -2%.  In addition, Qualcomm (QCOM), Lam Research (LRCX), Micron Technology (MU), and ASML Holding NV (ASML) closed down more than -1%.

Avis Budget Group (CAR) closed down more than -22% after forecasting full-year adjusted Ebitda of $800 million to $1.00 billion, weaker than the consensus of $1.07 billion. 

EPAM Systems (EPAM) closed down more than -17% to lead losers in the S&P 500 after forecasting a full-year revenue growth rate on an organic constant currency basis of 3% to 6%, weaker than the consensus of 6.3%.

Pool Corp (POOL) closed down more than -14% after reporting Q4 adjusted RPS of 84 cents, below the consensus of 98 cents, and forecasting full-year EPS of $10.85 to $11.15.  weaker than the consensus of $11.61. 

Wayfair (W) closed down more than -12% after reporting Q4 active customers of 21 million, below the consensus of 21.4 million. 

Carvana (CVNA) closed down more than -7% after reporting Q4 adjusted Ebitda of $511 million, weaker than the consensus of $535.7 million. 

Booking Holdings (BKNG) closed down more than -6% to lead losers in the Nasdaq 100 after reporting Q4 adjusted EPS of $48.80, below the consensus of $48.86.

Molson Coors Beverage (TAP) closed down more than -4% after reporting Q4 net sales of $2.66 billion, below the consensus of $2.70 billion. 

Omnicom Group (OMC) closed up more than +15% to lead gainers in the S&P 50 after reporting Q4 revenue of $5.50 billion, well above the consensus of $4.52 billion.

Deere & Co (DE) closed up more than +11% after raising its full-year net income forecast to $4.5 billion to $5.0 billion from a previous forecast of $4.00 billion to $4.75 billion.

Etsy (ETSY) closed up more than +9% after selling its Depop business to eBay for about $1.2 billion.

Occidental Petroleum (OXY) closed up more than +9% after reporting Q4 net sales of $5.11 billion, better than the consensus of $5.01 billion.

Insmed (INSM) closed up more than +6% to lead gainers in the Nasdaq 100 after reporting Q4 net product revenue of $263.8 million, above the consensus of $262.5 million. 

Quanta Services (PWR) closed up more than +6% after reporting Q4 revenue of $7.84 billion, better than the consensus of $7.40 billion, and forecasting full-year revenue of $33.25 billion to $33.75 billion, well above the consensus of $31.32 billion.  

CF Industries Holdings (CF) closed up more than +3% after reporting Q4 net sales of $1.87 billion, above the consensus of $1.76 billion.

Earnings Reports(2/20/2026)

Anglogold Ashanti Plc (AU), Esab Corp (ESAB), Lamar Advertising Co (LAMR), PPL Corp (PPL), Western Union Co/The (WU).