Stocks Tumble on AI Disruption Fears

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.84%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.55%.  March E-mini S&P futures (ESH26) fell -0.84%, and March E-mini Nasdaq futures (NQH26) fell -1.54%.

Stock indexes gave up an early advance on Tuesday and sold off sharply, with the Dow Jones Industrials falling from a new record high and the S&P 500 and Nasdaq 100 dropping to 1.5-week lows.  Data service and software stocks retreated on Tuesday, dragging the broader market lower, following the release of an automation tool for lawyers by artificial-intelligence firm Anthropic.  Also, chip makers and AI-infrastructure stocks gave up an early rally and fell sharply as investors rotated out of tech stocks into more economically sensitive industries.

Stocks initially moved higher on Tuesday after robust earnings from Palantir Technologies and Teradyne sparked a rally in technology stocks. Palantir Technologies closed up more than +5% after forecasting 2026 revenue that significantly exceeded expectations.  Also, Teradyne closed up by more than +11% after forecasting Q1 revenue well above consensus. 

Mining stocks rallied on Tuesday after the price of gold jumped more than +6% and silver prices soared more than +8%.  Precious metals are rebounding after the sharp selloff seen over the past two sessions. 

Cryptocurrency-exposed stocks tumbled on Tuesday after Bitcoin (^BTCUSD) fell more than 3% to a 1.25-year low, as the rout in equity markets sparked risk-off sentiment across other asset markets. 

Richmond Fed President Tom Barkin said today that the US economic outlook is improving as uncertainty fades, but risks remain, with hiring concentrated in a few sectors and inflation still running above the Fed's goal.

The partial US government shutdown, now in its fourth day on Tuesday, has dampened investor sentiment as markets await the House's approval of a funding deal President Trump worked out with Democrats.  The funding lapse may be short-lived, however, with the House possibly voting on the spending bill later Tuesday.  The partial shutdown has already prompted the Bureau of Labor Statistics to delay the release of today’s Dec JOLTS job opening report and Friday’s Jan nonfarm payrolls report.

The markets this week will focus on earnings, economic news, and the passage of a spending bill to end the partial government shutdown.  On Wednesday, the Jan ADP employment change is expected to increase by +45,000.  Also, the Jan ISM services index is expected to fall by -0.3 to 53.5. On Thursday, initial weekly unemployment claims are expected to increase by 3,000 to 212,000.  On Friday, the University of Michigan Jan consumer sentiment index is expected to fall -1.5 to 54.9.   

Q4 earnings season is in full swing, with 150 of the S&P 500 companies scheduled to report earnings this week.  Earnings have been a positive factor for stocks, with 80% of the 195 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 9% chance for a -25 bp rate cut at the next policy meeting on March 17-18.

Overseas stock markets settled mixed on Tuesday.  The Euro Stoxx 50 fell from a new all-time high and closed down by -0.20%.  China’s Shanghai Composite rebounded from a 4-week low and closed up +1.29%.  Japan’s Nikkei Stock 225 climbed to a new record high and closed up sharply by +3.92%.

Interest Rates

March 10-year T-notes (ZNH6) today closed unchanged.  The 10-year T-note yield fell -0.7 bp to 4.270%.  Mar T-notes recovered from a 1.5-week low on Tuesday, and the 10-year T-note yield fell from a 1.5-week high of 4.298%.  T-notes recovered from early losses today on an increase in safe-haven demand after US-Iranian tensions ramped up when the US Navy shot down an Iranian drone that was approaching a US aircraft carrier in the Arabian Sea.  Also, Tuesday’s selloff in stocks boosted safe-haven demand for T-notes. 

T-notes initially moved lower on Tuesday on negative carryover from Monday, after the Jan ISM manufacturing index expanded by the most in more than 3.25 years, and after Atlanta Fed President Raphael Bostic said he doesn't project any rate cuts for 2026, dampening expectations of further Fed rate cuts.  Also, comments on Tuesday from Richmond Fed President Tom Barkin weighed on T-notes, as he said the US economic outlook is improving and inflation is still running above the Fed's goal.

T-notes also have some negative carryover from last Friday when President Trump nominated Keven Warsh as the next Fed Chair.  Mr. Warsh is seen as more hawkish than other Fed Chair candidates and often emphasized inflation risks during his tenure as a Fed Governor from 2006-2011. 

European government bond yields moved higher on Tuesday.  The 10-year German bund yield rose to a 1-week high of 2.903% and finished up +2.3 bp to 2.891%.  The 10-year UK gilt yield rose +1.1 bp to 4.517%.

The French Jan CPI (EU harmonized) fell -0.4% m/m and rose +0.4% y/y, weaker than expectations of -0.2% m/m and +0.6% y/y.

Swaps are discounting a 2% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.

US Stock Movers

Data service and software stocks retreated on Tuesday following the release of an automation tool for lawyers by artificial intelligence firm Anthropic.  Thomson Reuters Corp (TRI) closed down by more than -15%, and EPAM Systems (EPAM) closed down more than -13%.  Also, Intuit (INTU) and FactSet Research Systems (FDS) closed down by more than -10%, and ServiceNow (NOW) and Adobe (ADBE) closed down by more than -7%.  In addition, Salesforce (CRM) closed down by more than -6% to lead losers in the Dow Jones Industrials. 

NXP Semiconductors NV (NXPI) closed down more than -5% to lead chip stocks lower after reporting Q4 automotive revenue of $1.88 billion, below the consensus of $1.89 billion.  Also, KLA Corp (KLAC) and Micron Technology (MU) closed down more than -4%, and Marvell Technology (MRVL), ASML Holding NV (ASML), Broadcom (AVGO), Applied Materials (AMAT), and Lam Research (LRCX) closed down more than -3%. 

Gartner (IT) closed down more than -21% to lead IT stocks lower and losers in the S&P 500 after reporting Q4 consulting segment revenue of $133.6 million, weaker than the consensus of $157.9 million.  Also, International Business Machines (IBM) closed down by more than -6%. 

Travel booking companies sold off on Tuesday after Bloomberg Intelligence said Google’s AI Travel planner poses a risk to booking platforms.  As a result, Expedia Group (EXPE) closed down more than -15%, Booking Holdings (BKNG) closed down more than -9%, and TripAdvisor (TRIP) closed down more than -5%.

Gold and silver mining stocks moved higher on Tuesday after gold rose more than +6% and silver rose more than +8%.  Hecla Mining (HL) closed up more than +8%, and Freeport McMoRan (FCX) closed up more than +6%.  Also, Coeur Mining (CDE) closed up more than +4%, Newmont Corp (NEM) closed up more than 3%, and Barrick Mining (B) closed up more than +2%.

PayPal Holdings (PYPL) closed down more than -20% to lead losers in the Nasdaq 100 after reporting Q4 net revenue of $8.68 billion, weaker than the consensus of $8.79 billion and announcing that CEO Chriss will be replaced by HP Inc CEO Lores. 

Fabrinet (FN) closed down more than -10% after the company’s results showed component constraints pressuring the datacom business, with Q2 datacom revenue down -7% y/y at $278 million.

TransDigm Group (TDG) closed down more than -9% after forecasting full-year EBITDA of $5.14 billion to $5.28 billion, with the midpoint below the consensus of $5.24 billion.

Pfizer (PFE) closed down more than -3% after forecasting full-year revenue of $59.5 billion to $62.5 billion, the midpoint below the consensus of $61.02 billion.

Archer-Daniels-Midland (ADM) closed down more than -1% after reporting Q4 revenue of $18.56 billion, well below the consensus of $21.05 billion.

DaVita (DVA) closed up more than +21% to lead gainers in the S&P 500 after reporting Q4 total revenue of $3.62 billion, above the consensus of $3.51 billion.   

Woodward Inc (WWD) closed up more than +13% after reporting Q1 adjusted EPS of $2.17, stronger than the consensus of $1.65. 

Teradyne Inc (TER) closed up more than +13% after reporting Q4 net revenue of $1.08 billion, stronger than the consensus of $964.2 million, and forecasting Q1 revenue of $1,15 billion to $1.25 billion, well above the consensus of $929.8 million.

AES Corp (AES) closed up more than +8% after Bloomberg reported that BlackRock Inc.’s Global Infrastructure Partners has teamed up with EQT AB in a bid to acquire the company.

Western Digital (WDC) closed up more than +7% to lead gainers in the Nasdaq 100 after its board authorized an additional $4 billion of share repurchases.

Palantir Technologies (PLTR) closed up more than +6% after reporting Q4 revenue of $1.41 billion, better than the consensus of $1.33 billion, and forecasting 2026 revenue of $7.18 billion to $7.20 billion, well above the consensus of $6.27 billion. 

FedEx (FDX) closed up more than +5% after Bernstein upgraded the stock to outperform from market perform with a price target of $427.

Merck & Co (MRK) closed up more than +2% after reporting Q4 sales of $16.40 billion, better than the consensus of $16.17 billion.

Earnings Reports(2/4/2026)

AbbVie Inc (ABBV), Aflac Inc (AFL), Align Technology Inc (ALGN), Allstate Corp/The (ALL), Alphabet Inc (GOOGL), ARM Holdings PLC (ARM), AvalonBay Communities Inc (AVB), Avery Dennison Corp (AVY), Bio-Techne Corp (TECH), Boston Scientific Corp (BSX), Bunge Global SA (BG), CDW Corp/DE (CDW), Cencora Inc (COR), CME Group Inc (CME), Cognizant Technology Solutions (CTSH), Corpay Inc (CPAY), Crown Castle Inc (CCI), Cummins Inc (CMI), Eli Lilly & Co (LLY), Equifax Inc (EFX), Essex Property Trust Inc (ESS), Everest Group Ltd (EG), Fortive Corp (FTV), Fox Corp (FOXA), GE HealthCare Technologies Inc (GEHC), Globe Life Inc (GL), IDEX Corp (IEX), Johnson Controls International (JCI), McKesson Corp (MCK), MetLife Inc (MET), Mid-America Apartment Communities (MAA), Old Dominion Freight Line Inc (ODFL), Omnicom Group Inc (OMC), O'Reilly Automotive Inc (ORLY), Phillips 66 (PSX), PTC Inc (PTC), QUALCOMM Inc (QCOM), Stanley Black & Decker Inc (SWK), STERIS PLC (STE), T Rowe Price Group Inc (TROW), Uber Technologies Inc (UBER), Yum!  Brands Inc (YUM).