Stocks drop on weak labor market data and AI concerns
By John Towfighi, CNN
New York (CNN) — US stocks dropped Thursday, continuing a recent patch of volatility, as Wall Street grappled with persistent nerves about artificial intelligence and economic data showed the labor market weakened over the past two months.
The Dow closed lower by 593 points, or 1.2%. The S&P 500 fell 1.23%, and the tech-heavy Nasdaq Composite fell 1.59%.
The Nasdaq posted its worst three-day slide since April as investors wrestle with the potential for AI to disrupt the software industry. The Nasdaq is down roughly 6% from its record high set in October. An exchange-traded fund tracking the software industry was down 5% Thursday and has fallen eight trading sessions in a row.
“The near-term trigger was the Anthropic plug in release, but investors have been grappling with software for the past few months as AI reduces the need of coders and impacts the revenue stream of a number of companies,” Mohit Kumar, a strategist at Jefferies, said in a note.
“Currently the market is at a stage of shoot first and ask questions later,” Kumar said. “Concerns are also being raised around private equity and private credit companies given their exposure to the sector.”
Shares of Blue Owl (OWL), a private credit firm with some investments in software companies, sank 3.57% Thursday and have fallen 11 trading sessions in a row.
While AI’s impact on software is in focus, Wall Street is in the midst of corporate earnings season, and there are also lingering nerves about just how profitable big tech companies’ bets on the AI boom will be.
Microsoft shares (MSFT) slumped 4.97% and have traded lower five out of the past six sessions after the tech giant reported earnings one week ago.
Alphabet (GOOG) shares fell 0.55% after the company reported earnings and outlined plans to ramp up spending on data centers and AI-related projects.
The risk-averse mood also hit crypto. Bitcoin dropped roughly 14% across the past day and slumped below $63,000, hitting its lowest level in 15 months. Bitcoin is down roughly 50% since hitting a record high above $126,000 in October and has now wiped out all of its gains since President Donald Trump’s victory in the US presidential election.
Gold, usually considered a haven amid uncertainty, was down 2.6%. Silver plunged 14%, continuing a recent bout of extraordinary volatility.
“When you see these kind of declines, they’re spectacular, they’re painful, but they’re in some ways the natural outcome of hyper-aggressive speculation,” Steve Sosnick, chief strategist at Interactive Brokers, told CNN.
“When you have trades that get very extended in a very short period of time, they have a nasty way of unwinding themselves,” Sosnick said.
Stocks extended their losses Thursday morning after two separate economic data reports painted a picture of a fragile labor market. US Treasury bonds rallied, pushing yields lower.
The monthly Job Openings and Labor Turnover Survey (JOLTS) showed job openings in December fell to their lowest level since 2020, according to the Bureau of Labor Statistics.
“The latest labor figures reiterate that the US jobs market is not firing on all cylinders, a risk the Fed and investors will have to take seriously should further deterioration occur,” Brent Kenwell, US investment analyst at eToro, said in a note.
“Volatility is increasing across multiple asset classes, including stocks, cryptocurrencies and precious metals,” Kenwell said.
The stock market in recent weeks had benefited from a “rotation trade,” or investors seeking opportunities in sectors other than technology. But the weak JOLTS report Thursday rippled through markets, putting more stocks on a back foot. More than 60% of stocks in the S&P 500 closed lower.
“We were benefiting from this rotation trade based on the idea of people favoring more economically sensitive stocks. And now we got jolted, pardon the pun, by bad economic news at a very inopportune time,” Sosnick at Interactive Brokers said.
That weaker-than-expected economic data came on the heels of data from Challenger, Gray & Christmas that showed last month was the worst January for job cut announcements since 2009.
“We do still see signs of labor market stabilization but we’re definitely at a precipice,” Sonali Basak, chief investment strategist at iCapital, told CNN. “We’re watching the data carefully.”
Wall Street’s fear gauge, the VIX, surged 16% and rose above 20 points, a threshold that signals elevated volatility in markets. CNN’s Fear and Greed Index hovered in “fear.”
The data comes as investors are awaiting the January jobs report, which has been delayed due to the partial government shutdown.
“With the jobs report delayed until next week, jitters around the labor backdrop is contributing to today’s cautious tone,” Seana Smith, senior investment strategist at Global X ETFs, told CNN.
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CNN’s Matt Egan contributed reporting.
