Non-farm payrolls increase to over a one-year high, failing to rescue the market! AI panic trading dominates US stocks, S&P 500 misses a historic high

On Wednesday, the U.S. stock market retreated from its morning gains and ultimately closed lower, despite strong employment data boosting the market. Concerns about the impact of artificial intelligence (AI) on multiple industries suppressed this round of rebound.

The S&P 500 index edged lower at the close, having briefly looked poised to hit a new all-time closing high during the day, but ultimately gave back all gains. The technology-heavy Nasdaq 100 index rose 0.3%, with a high of 1% intraday; meanwhile, the Chicago Board Options Exchange Volatility Index (VIX) hovered around 18.

“The rebound after the employment report was somewhat surprising, given that recent market focus has been more on the Federal Reserve than on the economy itself,” said Nationwide Chief Strategist Mark Hackett. “This sell-off mainly originated from the tech sector, continuing the pattern of recent months—international stocks and value stocks leading the rally.”

An index measuring the “Big Seven” U.S. stocks fell 0.6%, and ETFs tracking software stocks plunged 2.6%.

For over a week, software stocks have been under pressure due to market fears of disruptive impacts from AI on the industry. Investors have shifted to favor companies whose businesses are less likely to be replaced by AI.

Real estate services stocks also declined on Wednesday, as the market assessed the vulnerability of such companies to AI technology. CBRE (CBRE.US) tumbled 12%, while JLL (JLL.US) and Cushman & Wakefield (CWK.US) also fell.

This sector has become the latest to be caught up in what Keefe, Bruyette & Woods analyst Jade Rahmani calls “AI panic trading.” Over just the past week, investors have sold off stocks in software, private credit, wealth management, and insurance brokerage.

Market focus has now shifted to the Consumer Price Index (CPI) set to be released on Friday. JPMorgan’s trading division believes that if core CPI is close to or below expectations, there is a 70% chance the S&P 500 will rise.

Good news turns bad

“Growth stocks and momentum stocks are under the most pressure as the market expects interest rates to stay high for longer,” said Louis Navellier, Chief Investment Officer of Navellier & Associates. “This is another case of ‘good news turning into bad news’—the stronger the job market, the harder it is for yields to decline.”

The stock market initially rose in the morning on unexpectedly strong employment data. The U.S. Bureau of Labor Statistics reported that nonfarm payrolls increased by 130,000 in January, the largest gain in over a year, and the unemployment rate unexpectedly fell to 4.3%.

This data, originally scheduled for release on February 6 but delayed due to the government shutdown, indicates that after a year of rising unemployment and sluggish hiring last year, the labor market is gradually stabilizing.

Following the employment report, traders widely expect the first rate cut of the year to occur in July. Previously, markets considered June possible, and after retail sales data fell short of expectations, bets on a rate cut in April temporarily increased.

Quilter Investors analyst Lindsay James believes the Federal Reserve is likely to keep rates steady; however, Fed Chair nominee Kevin Woor may face pressure from the Trump administration to cut rates.

James describes the current U.S. market as “a kaleidoscope of contradictions”: on one hand, several economists have raised growth forecasts; on the other, household financial pressures are evident, and essential goods companies are signaling that low-income consumers are cutting back on spending.

“Additionally, since relevant data for 2025 has been significantly revised downward, investors may not dare to make hasty bets based on single-month data,” James added.