Global markets are experiencing a third consecutive day of declines, fueled by a pullback in risk appetite triggered by liquidations in artificial intelligence, cryptocurrency, and metals markets. The selling pressure is broad-based, extending beyond initial concerns in the tech sector and raising questions about the sustainability of recent gains.
U.S. Equities led the downturn, with technology stocks once again at the center of the selling. Bitcoin has also experienced a sharp drop as the liquidation cascade accelerated. According to Radu Puiu, a financial analyst at XTB România, the overall market picture has deteriorated considerably. Nine of the eleven S&P 500 sectors registered declines, indicating that the pressure is no longer confined to a single factor or theme. The Nasdaq Composite fell 1.6%, the S&P 500 lost 1.2%, and the Dow Jones Industrial Average declined by nearly 600 points.
AI Sector Under Re-Evaluation
Investor attention is decisively shifting from the potential revenue of AI towards capital intensity and margin risk, according to analysis. Recent guidance from Amazon and Alphabet has reinforced concerns that AI investment cycles may require significantly larger expenditures than previously anticipated by the market. Amazon’s planned investment of approximately $200 billion through 2026, coupled with Alphabet’s projected high spending, has raised questions about the return on capital invested across the sector.
This re-evaluation extends beyond large-cap companies to the software sector, where fears are growing that new AI models could weaken pricing power and compress margins. The result has been forced selling in some areas as investors reduce exposure to trades that had become crowded and highly sensitive to valuation assumptions.
Market Reaction and Economic Data
Adding to the downward pressure, U.S. Labor market data released on Thursday added a second source of concern. Initial jobless claims rose to 231,000, exceeding expectations, while announced layoffs reached their highest level since January 2009. While these figures do not yet signal a recession, they indicate increased caution among employers.
With the release of the non-farm payrolls data postponed until February 11th, smaller indicators related to the labor market will likely carry greater weight in short-term market pricing. A further slowdown in hiring increases risks related to wage increases, consumer spending, and earnings momentum outside of the technology sector, potentially leading to a broader decline in valuations.
As concerns about economic growth resurfaced, markets began to price in a faster pace of monetary policy easing by the Federal Reserve. Compared to the previous session, the probability of a 25 basis point rate cut at the March meeting increased to 20.7%, although a hold remains the baseline scenario. This shift reflects heightened risks of slowing economic growth rather than an improvement in inflation dynamics.
Looking Ahead: Positioning for Volatility
From a positioning perspective, markets are shifting towards defensive companies and those with strong cash flows amid waning confidence in a “soft landing.” In technology, valuation risk is increasing, and companies in the AI space may face renewed pressure if pricing pressures and large investment requirements persist.
Sensitivity to macroeconomic data is increasing, and indicators related to the labor market and inflation could move the market more significantly than usual. The tension is rapidly propagating globally, and Asia’s reaction demonstrates how quickly risk aversion from the U.S. Can transmit.
If the “Fed cuts earlier” narrative gains traction, financial conditions could ease, but this would confirm that growth concerns outweigh valuation excesses as the dominant market risk. Investors should expect continued volatility as markets recalibrate both earnings expectations and policy assumptions in the coming weeks.