By Sabrina Escobar
Artificial intelligence was supposed to be the stock market's guardian angel, but this past week, investors were grappling with the possibility that it has become Frankenstein's monster. Even so, it couldn't stop the Dow Jones Industrial Average from trading above 50,000 for the first time.
This past week was dominated by the collapse of software -- and just about every other industry that could be disaggregated by tools like Anthropic's Claude Opus 4.6. To wit, Thomson Reuters, PayPal Holdings, and Verisk Analytics all notched their worst weeks on record, shedding over 15% each. Oracle, S&P Global, and Booking Holdings also were hit. Even the once-hot information technology sector was down more than 2%.
Are the market's fears overblown? Companies with loyal customers, proprietary data, and value-add products will eventually become stronger with AI tools, notes John Belton, a portfolio manager at Gabelli Funds. "Software has been indiscriminately sold with no consideration for the nuances between companies and stocks," he writes.
Yet the pullback indicates investors' attitudes about AI are changing. "A market that once viewed AI as a rising tide lifting all boats has quickly become more skeptical, punishing companies seen as overspending and demanding clearer paths to return on investment," Mark Hackett, chief market strategist at Nationwide, said in an email.
Amazon.com and Alphabet's shares both cratered after announcing massive AI infrastructure spending plans -- Amazon intends to fork out $200 billion this year alone, while Alphabet predicts expenditures will range between $175 billion and $185 billion. As a result, consumer discretionary and communications services both joined tech deeply in the red for the week. Bitcoin, too, collapsed, though it rebounded some on Friday.
For a moment, it looked like the rest of the market would follow tech lower thanks to renewed jitters about the labor market. According to outplacement firm Challenger, Gray & Christmas, U.S. employers announced 108,435 job cuts in January, up about 118% from the same month last year and marking the highest January layoff number since 2009. Initial jobless claims also came in a touch above expectations.
Challenger attributes a large chunk of January's cuts to streamlining pandemic-era overhiring, but its data suggests Frankenstein's monster struck again -- AI was cited for about 7% of the layoff announcements.
Still, by the end of the week, the market appeared to have put those worries behind it. While consumer staples, a traditional haven, was the best-performing sector of the week, energy, industrials, and materials also finished up more than 4%, a sign that the market was moving away from companies that specialized in information to those that build and sell physical objects. Caterpillar, which gained more than 9% this past week, and 3M, which climbed 13%, both helped push the Dow above 50,000.
In fact, the outlook for the broader market looks mostly sunny. Earnings season has demonstrated that company fundamentals remain healthy, and the recent selloff has helped recalibrate valuations, notes Clark Bellin, chief investment officer of Bellwether Wealth. Indeed, Friday's rebound -- the S&P 500 rose 2%, the Dow gained 2.5%, and the Nasdaq Composite advanced 2.2% -- suggests that many investors bought the week's dip, though the Nasdaq still finished down 0.9% for the year.
Still, it seems the villagers have put down their torches and pitchforks for now. Sometimes monsters are less scary than they appear.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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(END) Dow Jones Newswires
February 06, 2026 16:28 ET (21:28 GMT)
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