US stocks experienced a significant decline on Thursday, amid ongoing volatility and heightened concerns surrounding artificial intelligence (AI) and the weakening labor market. The Dow Jones Industrial Average fell by 593 points, approximately 1.2%. The S&P 500 and the tech-heavy Nasdaq Composite also recorded losses of 1.23% and 1.59%, respectively. The Nasdaq has now experienced its most severe three-day drop since April, declining about 6% from its record high achieved in October.
This sell-off was partly triggered by the release of a new AI plug-in from tech company Anthropic, which has caused investors to reassess the implications of AI on the software industry. Jefferies strategist Mohit Kumar noted that investors are grappling with concerns over AI’s potential to disrupt coding jobs and its impact on the revenue of numerous companies in the sector. The market’s current sentiment reflects a reactionary strategy, with many investors opting to sell first and clarify their positions later. Additionally, fears surrounding the exposure of private equity and private credit firms to vulnerable sectors have contributed to the unease.
Shares of Blue Owl, a private credit firm with investments in software, dropped 3.57%, marking the 11th consecutive decline for the company. The stock activity comes amid the ongoing corporate earnings season, where there are increasing anxieties about the profitability of major tech companies’ investments in AI. Microsoft shares plunged 4.95%, having declined in five of the past six trading sessions following an earnings report. Similarly, Alphabet saw a slight decrease of 0.6% after announcing plans to increase spending on data centers and AI projects.
The market’s risk-averse climate has also extended to cryptocurrencies, with Bitcoin suffering a notable drop of around 14% in a single day, falling below $63,000 and hitting its lowest point in 15 months. This decline has wiped out all gains made since the peak following the 2020 US presidential election. Traditional safe havens like gold dropped by 2.6%, and silver plunged 14%, reflecting broader market volatility.
Steve Sosnick, chief strategist at Interactive Brokers, commented on the current state of the market, describing the hefty declines as a natural result of excessive speculation in a short time frame. “When you have trades that get very extended, they tend to unwind abruptly,” he stated.
This drop in stock values coincided with the release of two economic reports indicating a fragile labor market. The Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings in December fell to their lowest level since 2020. Brent Kenwell, an analyst at eToro, emphasized that these labor figures underscore a stagnant job market, an issue both investors and the Federal Reserve must consider seriously.
In recent weeks, the stock market had somewhat thrived due to a “rotation trade” where investors explored opportunities in sectors beyond technology. However, the weaker-than-expected JOLTS results triggered a negative reaction, with over 60% of S&P 500 stocks closing lower. As the market digests this data, Wall Street’s fear gauge, the VIX, surged by 17%, surpassing the 20-point mark that signifies heightened market volatility.
Investors are now anticipating the forthcoming January jobs report, which has been postponed due to a partial government shutdown, adding to the cautious sentiment pervading the market. As uncertainty looms, many analysts are calling for careful tracking of labor market indicators to gauge future economic trends. Even amidst these challenges, there are indicators of potential stabilization, sparking cautious optimism that the labor market may regain strength over time.