S&P 500, Nasdaq on track for biggest monthly drop in a year as AI worries bite

Wall Street’s main indexes dropped on Friday as AI anxiety hammered technology stocks, with the Nasdaq and the S&P 500 on pace for their steepest monthly loss since March 2025, while hotter-than-expected inflation data also weakened sentiment.

Technology shares faced selling pressure this month as concerns over high valuations and the uncertain payoff from Big Tech’s massive AI spending grew.

Nvidia slid 4.16% after plunging more than 5% in the previous session despite strong earnings, a sign that risk sentiment for all things AI remained shaky.

The broader technology index tumbled 1.7%, while financials dropped 2.1%, with both poised for sharp monthly declines.

Big banks including Goldman Sachs and private credit firms such as KKR & Co were among the biggest laggards.

Jefferies dropped 9.31% after media reports that the investment bank and other lenders face potential losses related to the collapse of U.K. mortgage provider Market Financial Solutions Ltd.

Risk appetite also took a hit after data showed U.S. producer prices increased more than expected in January, suggesting inflation could pick up in the coming months.

“Inflation has reared its ugly head, and the questioning of the true value of technology firms has resulted in a major selloff,” said Ben Fulton, CEO of WEBs Investments.

While losses in cyclical sectors dominated on Friday, investors appeared to rotate towards more defensive sectors, with consumer staples, utilities and health care rising more than 1% each.

At 4:45 p.m., the Dow Jones Industrial Average fell 521.28 points, or 1.05%, to 48,977.92, the S&P 500 lost 29.98 points, or 0.43%, to 6,878.88, and the Nasdaq Composite was down 210.17 points, or 0.92%, to 22,668.21.

Earlier in the day, brokerage UBS said it had cut its recommended allocation to U.S. equities to “neutral,” citing the relatively lower sensitivity of U.S. corporate earnings to global growth as well as high valuations among other reasons.

Tariff uncertainty also fueled volatility this month after the U.S. Supreme Court struck down most of Trump’s 2025 duties, prompting a temporary 10% global tariff that began on Tuesday.

Zscaler plunged 12.17% after the cloud security firm reported a wider net loss in the second quarter. The broader software index lost 1.9%.

Software shares and several industries were rocked earlier this year too, on fears of industry wide AI-driven disruptions.

Jack Dorsey’s Block surged 13.1% after the payments firm said it would cut more than 4,000 jobs, nearly half its workforce, as part of an overhaul to embed AI across operations.

Dell climbed 20.5% after the PC-maker said it expects revenue from its key AI-optimized servers business to double in fiscal year 2027 and promised to return more cash to shareholders.

Declining issues outnumbered advancers by a 1.58-to-1 ratio on the NYSE and by a 2.17-to-1 ratio on the Nasdaq.

The S&P 500 posted 37 new 52-week highs and two new lows, while the Nasdaq Composite recorded 50 new highs and 86 new lows.