The markets grew increasingly unstable this week. The AI trade is beginning to turn ugly, the tech sector has become the biggest laggard of 2026 and the crypto market is in a full-on crash. Add in the fact that Treasuries aren’t behaving like a safe haven and there are real questions about where investors should put their money right now. Without a notable economic catalyst to blame this past week, this looks like a broad de-risking where previous winners have become vulnerable.
Tip of the Week
The markets in 2026 have taught us that diversification is still important. Those who have overweighted tech in their portfolios are likely seeing significant underperformance now. Consider adding exposure to value, low volatility, dividend, small-cap, and international stocks to balance out some risk.
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Market Moves
Weekly Market Snapshot:
- S&P 500: -0.1% – a relatively modest loss for the index masks a gap of around 9% between the best and worst performing sectors, a level typically hit only a few times a year.
- Nasdaq 100: -2.2% – Google and Amazon led the index lower as announcements of increased AI spending were not welcomed by investors.
- Russell 2000: +2.3% – most other areas of the market outside of large-cap growth actually did quite well this week, proving that diversification still matters.
- VIX: 17.8 – before calming down on Friday, the volatility index briefly touched 23, a level not hit since around Thanksgiving of last year.
- Gold: +2.4% – the excessive volatility in precious metals still isn’t over; gold has at least stabilized to some point but silver is still moving sharply lower.
- 10-Year Treasury Yield: 4.21% – Treasuries are still failing to act as a safe haven asset with long-term yields hovering in a tight range.
Drivers:
Investors clearly seem no longer willing to blindly bet on crypto, tech, and AI stocks. Considering the positive performance of so many market sectors last week and the fact that Treasury yields still aren’t budging suggests that this is still a major market rotation as opposed to a pure sell-off. Let’s not forget though that volatility spikes can still push investors towards the exits. If we start to see stocks sell off broadly and Treasury yields move lower, it would be time to get more concerned.
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Economic Highlights
A couple of the notable themes that stood out this week:
Crypto Crash
As of Thursday’s market close, Bitcoin’s price had fallen by around 50% from its October peak. It had been stabilizing around the $90,000 level for the past couple of months before the bottom fell out this past week.
Source: TradingView.
This move looks closely linked to the AI trade. We saw the stock prices of Amazon and Google take a hit last week on the news of more AI spending ahead. Software stocks have been brutalized on the belief that AI is going to render much of it unnecessary at some point. That leads to two conclusions: 1) investors are beginning to believe that there’s such a thing as too much AI spending and companies aren’t going to get an adequate return on investment from it and 2) investors are now focused on areas of the market that will be damaged by the emergence of AI. The idea of general AI optimism is no longer going to generate automatic returns for tech stocks.
Mega-cap tech was an area of the market vulnerable to a pullback and we’ve begun seeing that play out. On a positive note, investors appear to be sticking with equities overall, just a different group than the one that’s gotten all of the attention lately.
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The Labor Market Shows Further Signs of Trouble
The brief government shutdown is pushing the highly watched non-farm payroll report for January into next week. But that doesn’t mean we didn’t get plenty of job market data to work with. Unfortunately, a lot of it wasn’t good.
The monthly ADP employment report, which measures private sector job growth, showed only 22,000 jobs added in January, about half of what was expected.1 In 2024, the average monthly gain was around 64,000 but slipped to around 33,000 last year. This continues the trend of the labor market managing to stay out of contraction but also stagnating on a month-to-month basis.
The December JOLTS job openings report fell to its lowest reading since summer 2020.2 With this number and the new hires rate both hitting multi-year lows, it appears that hiring managers are essentially putting a freeze on new headcount. The national unemployment rate, however, suggests that mass layoffs aren’t happening either though. Without job growth, the economy could soon struggle to keep expanding.
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The “Magnificent 7” Is Not So Magnificent
We’ve mentioned the performance of Google and Amazon this past week already. It’s worth reiterating though how much sentiment has turned against tech and AI stocks over the past week.
Technology is the worst-performing sector year-to-date. The magnificent 7 stocks collectively have performed even worse. The 2nd and 3rd worst performers of 2026 so far are consumer discretionary and communication services, both of which house at least one mag 7 stock. This trend goes all the way back to November, but it’s really picked up speed in the past week.
The Nasdaq 100 and the tech sector are only about 4% and 7% off of their all-time highs, respectively, so the overall damage still isn’t too bad. But valuations and sentiment are problems right now.
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The Week Ahead
A few themes to watch next week:
In Summary
The markets experienced one of the widest range of returns in months. Anything related to the AI trade is getting sold off hard. Given the gains we’re seeing elsewhere in the equity market, this looks like a significant rotation in process but not an all-out exit from stocks. Treasuries and precious metals are failing to gain any real safe haven interest. The overall trend in sentiment is that investors are looking for results, not hope. That theme could continue for a while longer.
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