Artificial intelligence is faltering
Last week was a natural continuation of the trends we have been seeing in the market since the start of the year. On the one hand, investors are still gradually rotating out of high-tech stocks, which is weighing on share prices, sector performance, and the Nasdaq overall. Among the week’s laggards were the sectors that drove most of the gains in 2025: Communication Services (-2.79% for the week), Consumer Cyclical (-1.72%), and the technology sector, where average losses came to -1.19%. That may not sound dramatic, but it was enough to make the Nasdaq Composite the weakest of the major U.S. indexes, down more than 2% over the period (-2.10%). Still, it would be hard to say other indexes fared much better. Losses were broad-based: the Dow Jones (DJIA-30) and the U.S. market’s main benchmark, the S&P 500, fell -1.23% and -1.39% respectively, slipping slightly from their all-time highs. This happened even though investors, just as actively as they were exiting big tech, were also buying stocks in defensive sectors with considerable enthusiasm. The strongest demand was for utilities and power companies, with the Utilities sector up an average of +6.28% for the week. Shares of materials and energy companies also performed strongly, with average gains of +3.81% and +2.4% respectively.
Even so, as we can see, weakness in technology is currently outweighing demand for defensive assets, and the market is slowly but steadily drifting lower. However, this does not look critical, and the indexes remain near their all-time highs. For now, there is no talk of a break in the long-term uptrend that has lasted for more than three years.
That said, the situation has changed fundamentally. After shares of many software companies have fallen sharply since the start of the year, fears have intensified that new AI tools will put serious pressure on a range of industries, including insurance, asset management, and transportation.
Riley Wealth’s chief market strategist, Art Hogan, compared the current situation to a game of Whac-A-Mole, as investors try to figure out what AI will destroy next, because the technology is so new that, in theory, it could end up swallowing the entire world. He added, "Probably not, but that’s where we are right now."
It is also important to note that at the start of this year, market expectations about different industries look different from what we saw through most of last year, when optimism about profits and AI-related capital spending supported gains across a wide range of stocks. Right now, that kind of clear AI hype has faded.
Market expectations for February 16
The coming week will be shorter for the U.S. market because Washington’s Birthday, also known as Presidents’ Day, is observed on Monday, but that does not mean it will be uneventful or irrelevant. On the contrary, many investors are weighing their options, and the market is clearly at a crossroads. That means meaningful signals that could kick off a more decisive move could emerge at any time.
What could serve as the trigger that finally gets the market moving? First, macroeconomic data. The most important release comes at the very end of the week: on Friday, the PCE price index, the Fed’s primary gauge of consumer inflation, will be published. In addition, there will be plenty of housing data, including building permits and housing starts (on Wednesday), as well as January new home sales. Construction data is generally viewed as a leading indicator for the broader economy, so it will be closely watched by both analysts and investors.
It is also worth keeping earnings season in mind. It is already nearing its end, but reports from individual companies can still shift sentiment sharply. This week, the market will be paying particular attention to results from the global leader in brick-and-mortar retail, Walmart Inc. (WMT), due out on Thursday before the open. Investors are expecting strong results for the final quarter of 2025, and now it remains to be seen whether the numbers will live up to those expectations. It will also be interesting to watch results from the largest gold miner, Newmont Corp. (NEM), as well as Deere (DE), the world-famous maker of smart autonomous tractors and other agricultural equipment.
As for the start of the week, Monday should be quiet. In the U.S., as noted, it is Presidents’ Day, and the Chinese market has gone into an extended break for Lunar New Year. As a result, the main action is likely to unfold closer to the end of the week, when noticeable spikes in volatility become more likely. What those swings will ultimately lead to remains completely unclear.