A new high in the non-farm payroll data fails to save the market! AI panic trading leads U.S. stocks, causing the S&P 500 to miss out on hitting a new historical high.

On Wednesday, the US stock market gave up early gains and closed lower, despite strong employment data boosting the market. Worries about the impact of artificial intelligence (AI) on multiple industries suppressed this round of rebound. The S&P 500 index closed slightly lower, after briefly having the potential to hit a new historical closing high, but eventually giving back all gains. The tech-heavy Nasdaq 100 index closed up 0.3%, reaching a high of 1% intra-day; while the Cboe Global Markets Inc Volatility Index (VIX) hovered around 18. "The rebound after the employment report was somewhat unexpected, considering the market has been more focused on the Federal Reserve recently, rather than the economy itself," said Mark Hackett, Chief Strategist at Nationwide. "This round of selling mainly came from the tech sector, continuing the trend of international stocks and value stocks leading the way in recent months." An index measuring the "Big Seven" stocks in the US dropped by 0.6%, and an ETF tracking software stocks plunged by 2.6%. For over a week, software stocks have been under pressure due to market concerns about the disruptive impact of AI on industries. Investors are now turning to companies whose businesses are difficult to be replaced by AI. Real estate services stocks also declined on Wednesday, as the market evaluated the vulnerability of these companies to AI technology. CBRE Group, Inc. Class A (CBRE.US) plummeted by 12%, while Jones Lang LaSalle (JLL.US) and Cushman & Wakefield (CWK.US) also fell. This sector has become the latest area involved in what Keefe, Bruyette & Woods analyst Jade Rahmani called "AI Panic Trading." Over just over a week, investors have been selling software, private credit, wealth management, and insurance brokerage stocks. The market focus now turns to the Consumer Price Index (CPI) set to be released on Friday. Morgan Stanley's trading department believes that if the core CPI is close to or lower than expected, there is a 70% chance that the S&P 500 will rise. Good news turned 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 at Navellier & Associates. "This is another case of 'good news turning bad' - the stronger the job market, the harder it is for yields to go lower." The stock market rose in the early session due to better-than-expected employment data. The US Bureau of Labor Statistics data showed that 130,000 jobs were added in January, marking the largest increase in over a year, and the unemployment rate unexpectedly dropped to 4.3%. This data, originally scheduled to be released on February 6 but delayed due to a partial government shutdown, indicates that after a year of rising unemployment and sluggish hiring, the labor market is gradually stabilizing. After the employment report was released, traders generally expected the first rate cut of the year to land in July. Previously, the market thought it could happen in June, and after retail sales data fell short of expectations, bets on a rate cut in April briefly increased. Lindsay James, an analyst at Quilter Investors, believes the Federal Reserve will likely maintain current interest rates, while Kevin Warsh, the nominee for Federal Reserve Chairman, may face pressure from the Trump administration to cut rates. James said the current US market is a "kaleidoscope of collisions and contradictions" in the eyes of investors: on one hand, several economists have raised their economic growth expectations; on the other hand, household financial pressures are apparent, and essential consumer goods companies have also indicated that lower-income consumers are cutting back on spending. "Furthermore, as the 2025-related data has been significantly revised downwards, investors may not be willing to make rash bets based on monthly data alone," James added.