A deep sell-off in software stocks entered its second day on Wednesday, with global equity markets declining as capital accelerated its rotation into stocks more sensitive to the economy. This follows a recent round of selling in sectors perceived as more vulnerable to "AI disruption risk." Meanwhile, gold has reclaimed the $5,000 per ounce level.
At the time of writing, Dow Jones futures were up 0.25%, S&P 500 futures gained 0.19%, and Nasdaq futures declined 0.2%.
The Europe Stoxx 600 index fell 0.3%, even though more than 350 of its constituent stocks advanced. The technology sector underperformed, primarily dragged down by declines in software stocks. Novo Nordisk A/S plummeted 17% due to disappointing sales prospects.
One of the triggers for Tuesday's sell-off was Anthropic's launch of a legal plugin for its generative AI chatbot, Claude.
Following Anthropic's release of the new legal AI model, European stocks in data analytics, professional services, and software fell further. The product served as another reminder to markets that companies whose business models are seen as most susceptible to AI disruption face tangible threats. Similar companies globally had already seen their share prices decline earlier.
Shares of SAP, Europe's largest software company, dropped over 3%. Just a week ago, SAP's disappointing cloud revenue outlook had wiped approximately $40 billion from its market value.
The sell-off in software stocks arrived with significant force.
There were signs that the software stock sell-off might ease at the open: PayPal and Expedia, two of Tuesday's hardest-hit stocks, both saw gains in pre-market trading.
India's IT exporter sector also experienced substantial declines; Japanese software and systems developers NEC, Nomura Research Institute, and Fujitsu saw their shares fall between 7% and 11%, contributing to a drop in the Nikkei index overnight. This sell-off occurred amid heightened concerns about a potential tech bubble burst, with associated risks seen as potentially threatening financial stability.
As worries about AI-driven industry disruption resurfaced, the trend of capital rotating into small-cap stocks and those with higher economic leverage intensified. The latest round of selling was triggered by a new automation tool from Anthropic PBC, with the downturn subsequently spreading to financial services firms and asset management institutions.
Toby Ogg, an analyst at J.P. Morgan, stated that investors' primary concerns center on assumptions about long-term industry growth, issues that extend far beyond the scope of typical "three-year forecasts."
"This sector is not just under a 'presumption of guilt'; it's now being sentenced before the trial," he said, adding that based on discussions with investors, the overall willingness to "buy the dip" remains low. He pointed out that software companies face multiple risks, including competition from AI-native firms and a trend of customers building internal solutions.
Stephanie Niven, a portfolio manager at Ninety One, commented, "I don't think the market has fully figured out if this move is driven by fear or fundamentals. What is clear is that we have a breakdown in confidence at the 'sector/category' level. Until we rebuild conviction at the individual company level for key names, we will see this indiscriminate selling."
Ben Barringer, Head of Technology Research at Quilter Cheviot, noted, "All innovation implies disruption at some stage, and we appear to be at a pivotal point in that journey for software and IT services companies."
He added, "There remains enormous uncertainty about what AI agents can actually do, so investors are choosing to avoid the software market altogether, with almost nowhere to hide."
The U.S. dollar was largely unchanged.
The U.S. dollar and Treasury yields were mostly flat. U.S. bond yields held steady ahead of key data due on Wednesday. Tradeweb data showed the 10-year Treasury yield edged up 0.3 basis points to 4.274%, while the 30-year yield was unchanged at 4.906%.
Eurozone government bond yields drifted slightly lower in early trading, reflecting market expectations of a slowdown in January inflation for the bloc. LSEG data indicated the 10-year German bund yield fell 0.6 basis points to 2.882%. On the supply side, Belgium is set to syndicate a new 30-year bond (OLO) maturing in June 2056, and Germany will auction bonds maturing in November 2032. The yield on Belgium's existing 30-year OLO maturing in June 2055 fell 1 basis point to 4.312%.
Bitcoin hovered near $76,000. The cryptocurrency saw only a modest rebound after hitting a 15-month low late Tuesday. Weighed down by the sell-off in software and data company stocks, Bitcoin fell to a low of $72,902 on Tuesday before recovering 0.5% to $76,526.
The yen extended its decline against major currencies as traders anticipated a victory for the Liberal Democratic Party led by Prime Minister Takaichi Sanae in the weekend election.
Gold futures reclaimed the $5,100 level.
Gold rose for a second consecutive day, attracting bargain hunters after a "historic pullback" from record highs, pushing back above $5,100. New York gold futures advanced 3.4% to $5,102.90 in early trading, following a 6% surge the previous session. The recent correction does not signal a change in gold's fundamental drivers; the medium-term outlook remains supported by continued central bank purchases, robust ETF demand, and persistent geopolitical and macroeconomic uncertainties.
Silver extended its rebound after a historic sell-off, with New York silver futures trading near $90 per ounce. Silver's retreat was significantly deeper than gold's, partly due to tight liquidity in the London market amplifying two-way volatility. Goldman Sachs warned that thin inventories create a market environment akin to a "squeeze": rallies accelerate when demand absorbs available metal, but gains are quickly reversed when supply pressures ease. Silver futures rose 7.5% to $89.57 per ounce in early trading.
Oil prices stabilized as traders closely monitored developments related to Iran. The U.S. shot down an Iranian drone heading towards the aircraft carrier USS Abraham Lincoln, and a U.S.-flagged vessel accelerated away, evading an attempt by Iranian armed speedboats to force it to stop; however, markets still expect negotiations with Washington to proceed this week.
Analysts at ING stated, "Uncertainty about how the talks will unfold means markets may continue to price in some risk premium." Both Brent crude and WTI crude closed more than 1.5% higher the previous day but were recently down 0.3% and 0.1%, trading at $67.11 and $62.07 per barrel, respectively. Additionally, traders are awaiting the U.S. EIA's weekly inventory data to assess the impact of recent severe winter storms on supply and demand in parts of the U.S.
Focus Stocks Silicon Laboratories surged 51% pre-market, while Texas Instruments fell 3.7%, as Texas Instruments acquires Silicon Laboratories for $7.5 billion. Uber dropped 10% pre-market after issuing a first-quarter profit guidance that fell short of expectations. AMD plunged nearly 7% pre-market, with its Q1 guidance deemed "too conservative." Super Micro Computer jumped over 11% pre-market, reporting better-than-expected Q2 results and citing strong demand for AI data center equipment. Novo Nordisk A/S fell nearly 5% pre-market, forecasting a decline in sales and operating profit for 2026. Eli Lilly rallied sharply, up 10% pre-market, after reporting Q4 adjusted EPS and providing 2026 revenue guidance that exceeded expectations. Boston Scientific's stock declined 6.1% pre-market following the release of its fourth-quarter earnings report. Oreo maker Mondelez fell 4.5% pre-market, despite solid Q4 results, due to weaker guidance for 2026. Take-Two Interactive Software rose over 5% pre-market after setting a release date for a blockbuster game and raising its full-year net bookings guidance. Banco Santander gained nearly 3% pre-market, reporting Q4 earnings that beat expectations and announcing a planned €5 billion share buyback. Lumentum, a leader in optical communications, surged 7.5% pre-market following a significant increase in Q2 revenue and strong Q3 guidance.
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