Real value vs. AI hype
Have you ever seen a two-headed dragon? A three-headed one – plenty of times! There are countless fairy tales and myths about them. But two-headed creatures, if they exist at all, are apparently quite rare. Yet last week we happened to witness just such a curious beast. The U.S. market split in opposite directions. On the one hand, the sell-off in technology stocks not only continued but intensified. On the other, investors suddenly remembered that there are not only virtual assets, but real, tangible values as well. As a result, stocks of companies operating in the consumer sector, industrial and energy giants, and firms involved in freight transportation, industrial packaging and various types of specialty consumer chemicals came into strong demand. In short, companies whose names investors hadn’t mentioned for many months – if not years – moved to the forefront. For example, how much do you know about DaVita (DVA), whose shares turned out to be the best performers in the S&P 500 over the past week?
There was no obvious villain, such as a geopolitical shock or tariff threats that could have triggered a broad sell-off. Instead, there was a steady stream of corporate and economic news that gradually eroded risk appetite and forced both speculators and investors to question much of what they had previously believed and taken for granted.
As for the sell-off in big tech and AI-related stocks, it all began last week with a new automation tool unveiled by Anthropic, the developer of the Claude chatbot. On Tuesday, this triggered a sell-off in software and financial services stocks amid fears that AI could undermine their business models. The anxiety then spread to the broader market on Thursday after Advanced Micro Devices (AMD) issued a weaker-than-expected outlook for the first quarter of this year. And finally, a large rusty nail was driven into the coffin of investor optimism by Google’s parent company, Alphabet (GOOGL), which seriously disappointed the market by doubling its planned AI spending for 2026. Taken together, all of this reignited investor concerns over whether AI will ultimately live up to expectations of generating substantial profit growth.
Macroeconomic concerns also added to the pessimism, including signs of a weakening labor market and expectations surrounding the upcoming nuclear negotiations between the U.S. and Iran, neither of which helped overall market sentiment.
On the other hand, previously lagging cyclical and defensive stocks significantly outperformed the broader market last week and to a large extent helped contain the downward trend in the major indexes.
As a result of this process, the true hero of the week turned out to be the oldest U.S. blue-chip index, the Dow Jones (DJIA-30), which closed above the 50,000-point mark for the first time in its history. Hooray, hooray, hooray! The main drivers of growth within the index were shares of healthcare majors Amgen (AMGN) and Merck & Co (MRK), as well as the global offline retail leader Walmart (WMT). Shares of all three companies gained more than 12% over the week. Industrial giants such as 3M (MMM) and Caterpillar (CAT) also performed strongly, with their stocks rising by more than 10% over the same period. As we can see, there are no technology stocks on this list, and the best among them, Apple (AAPL), ranks only seventh in this informal leaderboard.
As for the other two major U.S. indexes, the S&P 500 and the NASDAQ Composite, even a strong Friday – when the two indexes rose by 1.97% and 2.18%, respectively – was not enough to finish the week in positive territory. While the main benchmark of the U.S. market, the S&P 500, essentially ended the week flat, slipping a symbolic 0.1%, the losses for the high-tech NASDAQ Composite were far more significant, totaling 1.84%.
A very similar picture was seen in the ITS index family as well. The ITS World Index (ITSW), thanks to its strong geographic diversification, managed to withstand the wave of selling and ended the week up 0.31%. The ITS Shariah Index (ITSS), however, whose portfolio consists entirely of U.S. stocks, still posted a modest decline of 0.86%. Naturally, the main losers within this index were technology stocks such as Oracle (ORCL) and Microsoft (MSFT), which lost 14% and 7% of their substantial market capitalizations over the week, respectively. Unfortunately, losses of this magnitude could not be fully offset by either the strong gains in healthcare stocks such as JNJ, MRK, LLY, ABBV and AZN, or solid demand for industrial names like Caterpillar (CAT) or GE Vernova Inc. (GEV).
As we can see, the situation remains unstable. But for now, fortunately, despite all the sell-offs and the boiling passions around AI, the market as a whole is holding up, and there has been no sharp decline. Certain sectors and even entire indexes (once again, congratulations to the old-timer Dow on its new record!) are feeling very confident. That said, the market split is clearly intensifying, and at this point it is essential to closely monitor everything that is happening and keep a finger on the pulse of the rather unsettled gentleman known as the stock market.
Market expectations – February 9
If the past week marked the peak in terms of corporate earnings releases and major macroeconomic data, the coming week will be somewhat easier on that front. The earnings season has passed its midpoint, and most of the largest corporations have already reported. So, there should be no major surprises from this side anymore.
Macroeconomic data, however, will require particularly close attention in the coming week. On Tuesday, January retail sales figures will be released, and on Wednesday, the official labor market data postponed from Friday – including the unemployment rate and the number of new jobs – will be published. It can be assumed that macro data and the broader external news backdrop will be the main market drivers in the week ahead.
Monday is getting off to a positive start, with optimism coming from the shores of Japan. Japanese stocks hit record highs on Monday, with the Nikkei 225 soaring to 56,363 points, reflecting a clear vote of confidence in the “responsible and proactive” fiscal policy of Prime Minister Sanae Takaichi.
Initially, the price fell to a record low against the Swiss franc, but quickly reversed course after warnings of possible currency intervention from Tokyo.
On Sunday, snap parliamentary elections were held in Japan, in which Ms. Takaichi’s Liberal Democratic Party secured a decisive victory, winning 316 of 465 seats in the lower house. This gave her a strong mandate to push through large-scale spending and the promised tax cuts. It is also worth noting that Ms. Takaichi has repeatedly emphasized that her economic stimulus plans will not undermine the country’s finances – a point that usually matters greatly to markets, given that Japan already carries the heaviest debt burden in the developed world. Naturally, the strong positive momentum from Japan spilled over into other Asian markets as well, which are also posting solid gains this morning, rising on average by 1.5% to 2%.
“The result reduces political uncertainty and reinforces the broader ‘Japan is back’ narrative,” said Masahiko Loo, senior fixed-income strategist at State Street.
Europe is also trading in the green. That said, the color is less intense, with European markets posting gains measured not in full percentages, but rather in fractions of a percent – from 0.35% in France to 1.32% in Italy. Italy, however, is more of an exception, as the Italian stock market is currently enjoying a wave of hype following the successful opening of the 2026 Winter Olympics.
As for the U.S. market, things there remain relatively calm, and it appears that America simply hasn’t fully woken up yet after Super Bowl Sunday. Futures on the major U.S. indexes are cautiously holding in slightly positive territory, up about 0.1%, which is essentially flat. Market participants are waiting for more meaningful signals that could point to the next direction. It’s quite possible that many investors will choose to take Monday off and wait a day or two until retail sales data are released on Tuesday and, especially, labor market data on Wednesday. Only then will it be possible to move forward with greater confidence. The question is, however, in which direction? That remains open, and market participants will have to solve this difficult puzzle in the very near future. So, bursts of serious volatility are still ahead of us, and we will certainly see them. For now, there’s no time to relax. It’s time to prepare for some serious battles.