U.S. Stock markets finished a volatile week on a subdued note , as a cooler-than-expected inflation report failed to spark a sustained rally amid lingering concerns about the potential for widespread economic disruption from artificial intelligence. The S&P 500 closed relatively unchanged, while the Nasdaq Composite edged lower and the Dow Jones Industrial Average shed modest ground.
The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.2% in , translating to a 2.4% increase on an annualized basis. Economists polled by Dow Jones had anticipated a 0.3% monthly increase and a 2.5% year-over-year gain. Excluding the volatile food and energy components, core CPI aligned with expectations, rising 0.3% month-over-month and 2.5% year-over-year.
While the softer-than-expected inflation data provided some relief to investors, particularly those rattled by this week’s strong January jobs report, it wasn’t enough to overcome the pervasive anxiety surrounding the potential impact of AI on a broad range of industries. The market has been particularly sensitive to sectors perceived as vulnerable to automation and efficiency gains driven by artificial intelligence.
“Today’s inflation report is a relief for investors rattled by AI disruptions in the stock market. It also offsets this week’s strong payrolls report, giving the Fed a little more reason to lean dovish. However it’s still well above the central bank’s target and does little to move the needle near term,” said David Russell, global head of market strategy at TradeStation. “Policy expectations are going nowhere in a hurry.”
AI Disruption Fears Spread Beyond Technology
The initial wave of AI-related selling focused on software companies, but the concerns have rapidly broadened. This week saw significant declines in sectors as diverse as real estate, trucking and logistics, and financial services. Shares of Charles Schwab and Morgan Stanley have fallen 11% and 7% respectively this week, reflecting investor apprehension about the potential for AI to reshape the financial landscape. Software firm Workday is down 10% over the same period, and commercial real estate firm CBRE has lost 19% of its value.
The anxieties are not limited to established industries. The media sector is also facing scrutiny, with shares of Walt Disney and Netflix experiencing declines of 5% and 7% respectively this week, as investors assess the potential for AI to disrupt content creation and distribution models.
The market’s reaction underscores a growing realization that the impact of AI will extend far beyond the technology sector, potentially reshaping the competitive dynamics of numerous industries and forcing companies to adapt or risk obsolescence. This uncertainty is contributing to a risk-off sentiment, prompting investors to reassess valuations and rotate out of sectors perceived as particularly vulnerable.
Market Performance and Outlook
Despite the relatively benign CPI data, the major averages are on track for weekly losses. The S&P 500 and Dow are both down more than 1% for the week, while the Nasdaq Composite is poised for a roughly 2% decline. This reflects the overriding influence of AI-related fears on investor sentiment.
“Investors show no mercy for anything seen as an AI loser. The list is growing by the day, driving divergence between new/old economy sectors and US/[Rest Of World] equities,” said Barclays analyst Emmanuel Cau. “Amid erratic price action and fears of AI disruption turning into a broader macro/credit issue, growth, rates & earnings backdrop is okay.”
Not all stocks were caught in the downturn. Applied Materials bucked the trend, jumping 12% following strong earnings results and a positive outlook. Airbnb also saw gains, rising 6% on the back of upbeat guidance. However, Pinterest shares tumbled 24% after the company reported fourth-quarter results that missed expectations and issued a weak forecast, highlighting the uneven impact of the current market environment.
Looking ahead, investors will be closely monitoring corporate earnings reports and economic data for further clues about the potential impact of AI on the broader economy. The Federal Reserve’s monetary policy stance will also remain a key focus, as policymakers weigh the risks of inflation against the potential for slower economic growth.
The current market volatility serves as a stark reminder of the transformative power of technological innovation and the challenges of navigating a rapidly evolving economic landscape. The coming weeks and months will likely be crucial in determining whether the current AI-driven anxieties will translate into a more prolonged period of market uncertainty.
