Markets around the world registered a sharp reallocation of investor attention as fresh developments in artificial intelligence intensified scrutiny of which technology companies will benefit from the next phase of AI-driven automation and which may be disrupted by it.
The immediate catalyst for the ongoing downturn among software, analytics and professional services stocks was the announcement that an AI firm had rolled out a new agent-style tool designed to automate work tasks. That news, which landed last Friday, took nearly two full trading days to fully reverberate through markets and prompted a broad reappraisal of the winners and losers inside the tech sector.
Investors moved quickly to punish a swath of software and data-focused firms, while other corners of technology fared differently. Hardware and chip companies in Asia continued to perform strongly, illustrating the growing market tendency to separate potential AI beneficiaries from those seen as more vulnerable. Even firms reporting strong headline earnings did not escape the turbulence - Microsoft was hit again and AMD slid sharply out of hours despite a forecast-beating earnings report.
Against that backdrop of tech divergence, Walmart reached a milestone: the company became the first retailer to exceed a $1 trillion market valuation. The retailer's stock has climbed nearly 26% over the past year, elevating it into the ranks of the largest technology and consumer-facing companies by market capitalization. That ascent has occurred alongside the company's early adoption of AI in operational processes.
Further tests of investor sentiment are due as major corporate results arrive. Alphabet's results, scheduled after the bell on Wednesday in the reporting calendar, are expected to provide further direction for technology equities.
Macro backdrop and activity indicators
Broader market participants are also weighing signals that point to an acceleration in economic activity. The manufacturing measure from ISM registered a notable jump, while the Fed's quarterly loan officers survey showed brisk business loan growth. These data points, along with the unusual move by Australia to raise interest rates this week, are prompting investors to reassess economic momentum.
Key releases due include the ISM service sector report for last month and ADP's private sector jobs reading, both of which will attract attention for clues on underlying labor market and services momentum. Even though the House of Representatives voted to end the partial government shutdown for an additional 10 days, that development came too late to ensure a full January employment report would be published this week.
Regional service sector surveys overseas came in slightly below expectations in Europe but showed pickup in Japan and China. Market participants were also eyeing policy meetings at the European Central Bank and the Bank of England, set to take place tomorrow, which contributed to a calmer tone in major currencies. Still, the Japanese yen weakened further ahead of weekend elections in Japan, while China's yuan briefly strengthened to its best levels in almost three years as the Lunar New Year holiday approaches.
Commodities, crypto and geopolitical flashpoints
Commodity markets reflected the elevated geopolitical risk profile. Gold continued its gradual recovery, while oil surged following a fresh escalation in U.S.-Iran tensions after the U.S. military shot down an Iranian drone on Tuesday. Bitcoin remained under pressure, struggling to stabilize after sliding to its lowest levels since before the U.S. election in 2024.
Chart of the day
A deep selloff in global software stocks entered a second day as investor concern mounted about how recent AI developments could affect companies' future revenue pools and cost structures. Traders traced the pullback to the new agentic AI tool released by an AI firm, and over the past six months markets have increasingly differentiated among winners and losers from AI within technology. Since the launch of ChatGPT, the S&P 500 software and services group is now trading in negative territory, while chip stocks have surged and nearly trebled in value.
Events to watch
- U.S. ISM services PMI for January (10:00 AM EST)
- S&P Global services PMI for January (9:45 AM EST)
- ADP private sector jobs for January (8:15 AM EST)
- Speeches: Fed Governor Lisa Cook; Richmond Fed's Thomas Barkin
- U.S. corporate earnings: Alphabet, Arm, Eli Lilly, Qualcomm, Uber
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