U.S. stocks continued to fall in late trading on Friday, with the three major indices poised to record losses for both the week and the month of February. NVIDIA's stock declined for a second consecutive session following its earnings report. Major software stocks experienced broad-based declines. The latest Producer Price Index data significantly exceeded expectations, indicating persistent inflation in the U.S. and heightening concerns about potential market volatility. UBS downgraded its rating on U.S. equities.
The Dow Jones Industrial Average fell by 677.87 points, or 1.37%, to 48,821.33. The Nasdaq Composite dropped 281.33 points, or 1.23%, to 22,597.05. The S&P 500 declined by 56.23 points, or 0.81%, to 6,852.63.
Pressure mounted on the S&P 500 as technology stock declines and elevated inflation data weighed on the market, causing the benchmark index to fall back below its closely watched 50-day moving average—a key technical indicator. The index also dropped below the Fibonacci retracement level of 6,850.62. A close below these levels could exert further pressure on the market.
UBS Downgrades U.S. Equities Rating Andrew Garthwaite, Global Equity Strategist at UBS, downgraded U.S. stocks to "benchmark" within a fully invested global equity portfolio, citing risks from a weakening U.S. dollar, high valuations, and increasing policy turbulence in Washington.
Garthwaite noted that dollar risk is a core concern. UBS expects the euro to climb to 1.22 against the dollar by the end of the first quarter and views the dollar as facing "asymmetric structural downside risks." Historically, the bank stated, a 10% decline in the trade-weighted U.S. dollar index has led U.S. stocks to underperform by approximately 4% on an unhedged basis.
This year, foreign markets have significantly outperformed the U.S., as a weaker dollar and lower valuations attracted capital overseas. The MSCI World ex-U.S. Index has risen about 8% in 2026, while the S&P 500 has been nearly flat.
Economic data released on Friday showed the U.S. Producer Price Index rose at a faster-than-expected pace in January, dampening hopes that inflation is easing. More concerning was the core PPI figure, which excludes volatile food and energy prices.
The core PPI, adjusted for seasonal factors, increased 0.8% month-over-month, up from a 0.6% rise in December and far exceeding the Dow Jones consensus forecast of 0.3%. The headline PPI, which includes all items, rose 0.5% month-over-month, also surpassing the 0.3% forecast and up 0.1 percentage point from the previous month.
Year-over-year, core wholesale prices increased 3.6%, while the headline index rose 2.9%. Both figures remain well above the Federal Reserve's 2% inflation target, indicating that rising prices continue to pose a challenge for the U.S. economy.
Technology stocks faced renewed pressure on Friday, extending their weak performance for the month, with NVIDIA declining further after its earnings report. In the previous session, NVIDIA closed down more than 5%, surprising many investors who remain bullish on the chipmaker due to its strong fourth-quarter results and upcoming product cycle. Market participants attributed the stock's decline to concerns about NVIDIA's deal with OpenAI, weak sentiment around AI trades, and doubts about the sustainability of high AI capital expenditures by hyperscalers.
The AI chip favorite invested $30 billion in OpenAI's latest funding round, which totaled $110 billion. Amazon, which invested $50 billion in the same round, saw its stock decline alongside NVIDIA. In previous bull markets, such announcements typically boosted related tech stocks.
Major software stocks also suffered losses on Friday, capping a difficult month. Salesforce fell more than 3%, and Microsoft declined about 1%, dragging down Dow futures. Cybersecurity firm Zscaler dropped 9% after its second-quarter deferred revenue and billings fell short of expectations. CoreWeave fell 11% due to disappointing guidance.
Stocks in the financial sector and other market segments also pulled back amid concerns that AI poses a threat to the labor market and the broader economy. These worries intensified after Block announced on Thursday that it would lay off more than 4,000 employees, nearly half of its workforce.
"Investors are slowing their pace of building positions due to increased uncertainty," said Sameer Samana, Global Equity and Real Asset Strategist at Wells Fargo Investment Institute. Samana remains confident that economic and corporate earnings growth will lead the S&P 500 to overcome short-term challenges and break higher from current levels.
Friday marked the final trading day of February, a volatile month during which software stocks were shaken by fears of AI disruption. As a result, the Nasdaq Composite is on track for a 2.5% monthly decline, its worst performance since March of last year. The iShares Expanded Tech-Software Sector ETF fell 9% for the month, bringing its year-to-date decline to 21%.
The S&P 500 is set to decline 0.4% for February, while the Dow Jones Industrial Average is poised for a 1.2% gain.
