AI selloff meets defensive bid ahead of CPI and trade shifts

Introduction#

U.S. equities closed lower on Thursday as technology-led selling met a decisive rotation into defensives, setting a cautious tone ahead of Friday’s open. According to Monexa AI, the S&P 500 (^SPX) settled at 6,832.76 (−1.57%), the Dow (^DJI) at 49,451.98 (−1.34%), and the Nasdaq Composite (^IXIC) at 22,597.15 (−2.03%). Cross-currents from artificial-intelligence spending angst, tariff headlines, and a newly signed U.S.–Taiwan trade deal are the immediate inputs shaping pre-bell positioning. Overnight, global press coverage underscored the same themes: investors are questioning near-term returns on massive AI capex even as secular demand remains intact, while trade policy signals are shifting. Reuters and Bloomberg have emphasized the scale of spending by hyperscalers, and financial-sector governance headlines from Goldman Sachs added a micro risk layer to an already risk-off tape (Reuters.

Market Overview#

Yesterday’s Close Recap#

The prior session featured broad weakness with pronounced dispersion. According to Monexa AI, the major U.S. indices closed as follows, with volatility gauges higher into the close.

Index-level declines were driven by technology and cyclical underperformance, while defensive pockets rallied. The CBOE Russell 2000 Volatility Index (^RVX) jumped to 26.15 (up +13.75%), and the CBOE Volatility Index (^VIX) rose to 21.51 (up +3.31%), confirming a broader risk-off shift and rising demand for protection. Within technology, selling pressure extended beyond mega-caps into mid- and small-cap names, with sharp single-stock drawdowns amplifying the downside. According to Monexa AI’s heatmap analysis, several large-cap technology and communication services bellwethers declined modestly but carried outsized index impact due to their scale, while a handful of network, security, and data-center infrastructure names diverged positively.

Overnight Developments#

Overnight news centered on three threads that are likely to influence the tone at the open. First, AI-related spending and competitive dynamics remain the market’s top debate. Reporting from Reuters highlights Alphabet’s 2026 capital-expenditure outlook of roughly $175–$185 billion, while Reuters similarly notes Amazon’s 2026 capex plan near $200 billion focused on AI infrastructure; Bloomberg previously reported Microsoft’s AI data-center outlays at about $80 billion in FY2025. These figures validate the capex surge that is unsettling near-term equity sentiment despite clear long-term demand signals. Second, trade policy is evolving: Monexa AI’s general news feed notes the U.S. and Taiwan signed a deal lowering tariffs to 15% and expanding market access, while a separate Reuters lens on tariffs underscores continued earnings sensitivity across industrial supply chains. Third, macro catalysts loom: Monexa AI’s overnight highlights point to January CPI due this morning, and Swiss inflation holding steady, with India unveiling a new CPI basket to better reflect e‑commerce and consumption shifts.

Macro Analysis#

Economic Indicators to Watch#

The immediate macro focus is inflation. With January CPI due this morning, investors are calibrating the balance between a still-firm labor market and evidence of disinflation. Elevated volatility into Thursday’s close and the rally in defensives reflects a market bracing for potential surprises. The combination of higher volatility indices and a bid for Consumer Defensive and Utilities indicates portfolio hedging and a tilt toward quality, cash-generative profiles. Internationally, steady Swiss inflation supports expectations that the Swiss National Bank remains on hold, as flagged by Monexa AI’s global summary. India’s overhaul of its consumer-price index basket to include e‑commerce and updated consumption weights is a structural step that could reduce measurement noise and improve macro credibility, relevant for global allocators assessing emerging-market demand contours overnight.

Global and Geopolitical Factors#

Trade realignment remains a defining macro theme. Monexa AI’s feed reports that the U.S.–Taiwan trade deal reduces tariffs to 15% and opens access for U.S. industrial and agricultural goods; for markets, the near-term relevance is how this interacts with supply-chain planning and North American semiconductor capacity. The Financial Times has discussed the strategic implications of tariff frameworks for Taiwanese exports, while European trade data show resilience despite tariff frictions, with the EU’s exports to the U.S. holding up even as inbound shipments from China rise, according to Monexa AI’s Europe wrap. Separate reporting indicates the U.S. administration is reviewing elements of the steel and aluminum tariff regime after business and ally pushback; if implemented, tariff softening would have uneven effects across producers and downstream users, a point underlined by Reuters. In parallel, international fund-flow coverage from the Financial Times highlights a rotation away from U.S. tech toward European equities and U.S. defensives in early 2026, an allocational shift consistent with Thursday’s sector tape.

Sector Analysis#

Sector Performance Table#

According to Monexa AI, Thursday’s sector performance was bifurcated, with Consumer Defensive and Utilities advancing while cyclical and AI-exposed groups sold off.

Defensive rotation was visible in Consumer Defensive, led by gains in staples-oriented retail and beverages. Utilities advanced on the back of regulated earnings stability and a preference for bond-proxy characteristics amid uncertainty. Real Estate was mixed, masking a sharp positive re-rating in data-center and tower REITs against weakness in traditional property types. Materials and Energy reflected commodity sensitivity and lingering growth concerns, while Technology and Communication Services absorbed the brunt of AI-disruption fears and capex anxiety.

Company-Specific Insights#

Earnings and Key Movers#

Thursday’s single-stock moves were unusually dispersed, creating a stock-picker’s tape. According to Monexa AI’s heatmap and price data, large-cap technology and adjacencies were broadly weaker, but there were notable idiosyncratic winners. Among mega-cap and large-cap technology and internet platforms, AAPL fell -5.00% to 261.73 after a volatile session that also included legal headline relief, GOOGL declined -0.63% to 309.00, AMZN dropped -2.20% to 199.60, META slid -2.82% to 649.81, and NVDA eased -1.64% to 186.94. Within semis and equipment, TSM finished -1.63% to 368.10, while metrology specialist NVMI fell -6.78% to 443.55 despite an upgrade from Jefferies to Buy with a target lifted to $520, as summarized by Monexa AI.

Legacy networking underperformed with CSCO down -12.32% to 75.00 following a stark divergence versus peer execution elsewhere, while edge and security names were pockets of strength, with AKAM up +10.35% to 104.61. Software and ad-tech volatility remained intense as APP tumbled -19.68% to 366.91. In Communication Services, gig and streaming exposed names sold off, including DASH at -8.17% to 161.14 and DIS at -5.32% to 102.37, even as TMUS gained +2.45% to 214.68 on defensible wireless cash-flow attributes. Consumer platforms and EVs also weakened, with TSLA down -2.62% to 417.07.

Financials reflected the risk backdrop and governance noise. Money-center and asset managers retreated, with JPM down -2.63% to 302.64 and BLK off -2.52% to 1,055.63. GS fell -4.24% to 904.55 as governance headlines intensified after reports its top lawyer would resign amid disclosures related to the Epstein files, as covered by Reuters. Volatility concentrated in fintech and crypto-levered names, with HOOD down -8.79% to 71.12 and COIN off -7.90% to 141.09.

Cyclicals and transports were weak, with logistics names sharply lower as CHRW declined -14.54% to 167.78 and EXPD fell -13.18% to 140.56. Heavy equipment and trucking-exposed OEMs traded down, with DE at -2.38% to 598.11 and PCAR at -3.58% to 124.84. Hotels and leisure were softer, seen in BKNG at -3.56% to 4,159.10.

Defensives provided ballast. Big-box staples and grocers rallied, with WMT up +3.78% to 133.64, COST up +2.12% to 998.86, KR up +2.16% to 70.14, and value retail such as DLTR up +2.74% to 128.43. Beverages outperformed as HEINY rose +2.61% to 47.53 following a price target raise from Citi captured by Monexa AI. In Utilities, EXC jumped +6.97% to 47.55, AEP climbed +3.42% to 126.43, SO gained +1.87% to 92.56, and PCG added +2.72% to 17.56. Healthcare displayed mixed defensiveness with LLY up +2.27% to 1,038.27 and UNH up +1.96% to 284.37, offset by med-tech weakness as BAX fell -15.99% to 18.71 and ALGN slipped -6.91% to 183.86.

Real Estate bifurcated sharply. Data centers and towers rallied, with EQIX up +10.41% to 957.87, AMT up +4.27% to 188.19, and SBAC up +4.36% to 199.29, while property services lagged as CBRE fell -8.84% to 136.28 and industrial leader PLD declined -2.50% to 136.38. In Energy and Materials, weakness was broad: XOM dropped -3.63% to 149.92, CVX fell -1.87% to 182.35, refiners such as MPC slid -5.09% to 198.02, and E&Ps including OXY were down -3.70% to 45.49. Commodity sensitivity hit miners and lithium names, with FCX down -5.22% to 62.04, NEM down -5.20% to 118.12, and ALB down -9.41% to 158.93. Select specialties outperformed, including IFF at +5.89% to 81.50 and SHW at +1.53% to 372.60. Midstream remained relatively resilient, with KMI up +0.76% to 31.69.

On the earnings and corporate front, Monexa AI flags several items. Cameco CCJ reported a solid fourth quarter and reiterated a constructive long-term outlook for uranium, noting increased market activity and the benefits of a disciplined supply strategy in its year-end release. In hospitality, Hyatt H gained investor support post-call, with Stifel setting a $170 target as per Monexa AI. In consumer discretionary, CROX received a new price target of $118 from Needham following an earnings beat on adjusted EPS and better-than-expected revenue; the stock surged +19.01% to 98.46. In semicap, NVMI was upgraded as noted, and in packaging, Smurfit Westrock SW drew a $60 target from Truist amid a sustainable-growth narrative. Within financials, governance risks surfaced at GS as discussed above. Among Indian IT majors, INFY fell -9.84% to 14.21 and WIT declined -4.40% to 2.28 as sector de-rating accelerated amid concerns that AI tools could cannibalize services revenues, according to Monexa AI’s international summary.

Extended Analysis#

Global Overnight Shifts: How They May Drive Today’s Open#

The debate now hinges on the timing mismatch between AI-driven capital outlays and monetization, and that mismatch is dictating factor leadership. As Reuters reports, Alphabet’s 2026 capex guide of $175–$185 billion, paired with Reuters’ coverage of Amazon’s roughly $200 billion plan, reinforces that hyperscaler spend will remain a headline variable for margins and free cash flow. Bloomberg similarly characterized Microsoft’s AI build as an $80 billion FY2025 program, implying continued ramp into 2026. Oracle’s disclosures show an AI-linked cloud backlog as a counterpoint to the sell-first reflex: Oracle has discussed an OCI revenue aspiration of roughly $18 billion for FY2026 with an RPO of about $455 billion, per its investor communications, while IBM has flagged a $12.5 billion AI book of business. The market’s task is connecting these demand signals with realized usage, pricing, and unit economics, a process that tends to lag capex by several quarters. Until that linkage is clearer in reported margins and cash flow, the bias will remain toward rewarding defensive earnings and penalizing ambiguous ROI stories.

Trade developments could buffer select supply chains. The U.S.–Taiwan trade deal, as summarized in Monexa AI’s overnight feed and discussed in the Financial Times, lowers tariffs to 15% on Taiwanese exports and widens preferential access for U.S. goods. For semiconductors, this may subtly improve North American sourcing economics and reinforce the case for U.S.-based manufacturing nodes. Taiwan Semiconductor TSM, already expanding in Arizona, could see incremental pricing and access advantages as the policy environment tilts toward allied supply chains. The magnitude will depend on deployment tempo and competitor capex from Samsung and Intel, but directionally the framework is supportive.

In industrials and materials, tariff softening on steel and aluminum—if adopted—would likely pressure domestic steel pricing power while relieving cost pressure for downstream autos and construction. Reuters has documented how tariff regimes filter into earnings mechanics across both producers and users; equities such as Nucor NUE may cede some margin to the benefit of auto OEMs and parts suppliers if input-cost relief is meaningful and durable. The debate will live in management commentary on pass-through arrangements and the cadence of any policy implementation.

Finally, governance risk warranted attention in financials. Reuters reporting on Goldman Sachs’ top lawyer stepping down introduces an idiosyncratic overhang in an otherwise macro-driven sector tape. While not systemic on its face, it can widen risk premiums marginally for firms with elevated governance questions during periods of heightened volatility, a factor investors may consider when sizing exposures across brokers, asset managers, and banks.

Conclusion#

Morning Recap and Outlook#

Heading into Friday’s open, the overnight setup is defined by three catalysts. The first is inflation. With CPI on deck, a higher-volatility backdrop and a pronounced tilt toward defensives reflect a market positioned for asymmetry around the print. The second is AI capex. The prior session’s drawdown concentrated in technology and communication services shows investors demanding clearer pathways from unprecedented infrastructure outlays to near-term monetization. The third is trade. A U.S.–Taiwan deal and signs of potential tariff softening on steel and aluminum introduce sector-level rotations that could persist if policy shifts become concrete.

Positioning-wise, the prior close delivered a clean read on risk appetite. Technology, communication services, and cyclical industrials weakened, while Consumer Defensive, Utilities, and selective real-estate infrastructure outperformed. Within groups, dispersion remained extreme—data-center and tower REIT strength versus traditional property weakness; security, edge, and analytics resilience versus legacy networking and ad-tech underperformance; and uranium and select specialty chemicals holding up better than broad miners and lithium. This is an environment that rewards idiosyncratic research and disciplined risk control rather than blanket beta exposure.

For investors, the near-term playbook is straightforward. Watch the volatility complex after the open to gauge whether hedging demand persists following the CPI release. Monitor hyperscaler commentary and supplier color for any shift in AI capex pacing and pricing, with Reuters and Bloomberg offering context on the scale of planned investments. Track policy headlines and management guidance in industrials for signs that tariff recalibration is translating into margin deltas across producers versus downstream consumers. Finally, lean on defensives where earnings visibility and cash generation are clearer, while reserving capacity to re‑risk into technology where monetization evidence tightens the capex-to-revenue loop.

Key Takeaways#

Thursday’s close set a cautious tone defined by a decisive rotation into defensives and elevated volatility, as shown by moves in ^VIX and ^RVX and by sector leadership skewing toward staples and utilities. The overnight narrative reinforced capital-spending concerns in AI infrastructure with credible figures from Reuters and Bloomberg, while trade-policy shifts emerged as a secondary catalyst with implications across semiconductors and metals value chains. Against that backdrop, stock dispersion is the feature, not the bug—data centers and towers rallied even as legacy property and logistics sold off; analytics and security bucked pressure facing ad‑tech and legacy networking; and uranium and specialty chemicals diverged from broader miners and lithium. The investable takeaway before the bell is to keep risk sizing tight, emphasize quality and cash flow, and be prepared to pivot as hard data—particularly CPI and management commentary on capex ROI—resolve the market’s central debates.