US stocks experienced pressure on Thursday, with the S&P 500 falling 0.7%, the Nasdaq dropping 1.6%, and the Dow declining 0.2%. Cryptocurrencies also fell over 4%, reaching near two-month lows. Microsoft’s 11% decline, linked to slower cloud growth, marked its worst performance since early 2020.
The tech sector showed weakness amid concerns over rising artificial intelligence costs potentially transforming existing models. ServiceNow dropped despite surpassing earnings expectations, and Oracle and Salesforce saw declines. The software-focused IGV ETF entered bear market territory, now over 20% below its previous high as sentiment shifted from AI optimism. AI’s role as a growth factor remains, but earnings quality and diversification are growing in importance as valuation growth faces challenges.
Meta And Caterpillar Shine
However, Meta’s shares soared following robust earnings, with 24% revenue growth driven by advertising. Their positive sales forecast indicated investor confidence in Meta’s aggressive AI investment plans. Caterpillar also reported strong quarterly results. Meanwhile, copper prices hit an all-time high, climbing 8% to $6.45 a pound, reflecting expectations for sustained global economic activity.
US government budgetary issues remain, with fears of another prolonged shutdown. AI’s academic discipline focuses on mimicking human cognition, and companies like Nvidia and Palantir play big roles by creating AI platforms and analyzing data, respectively. Stock rallies following AI advancements like ChatGPT raise concerns about a tech bubble, given high valuations.
Given the pressure on megacap tech, hedging long positions with puts on the Nasdaq (QQQ) seems prudent in the coming weeks. Microsoft’s guidance confirmed that its cloud growth is slowing into the low 20% range, a significant deceleration from the 30% rate we saw in early 2025. This suggests the market will punish tech companies that fail to meet very high growth expectations.
The software sector’s drop into a bear market signals a major shift away from the AI-fueled optimism of last year. We are now seeing that valuations built on AI hype alone are unsustainable without accompanying profit growth. Short-term bearish plays, like selling call spreads on the IGV software ETF, could be an effective strategy as more investors rotate out of this recently crowded trade.
Market Volatility And Copper Surge
However, the market is not moving in unison, as shown by Meta’s powerful earnings report and Caterpillar’s solid performance. This split performance makes pairs trades attractive, such as buying calls on Meta while buying puts on a broader software ETF to isolate company-specific strength. This divergence shows that focusing on earnings quality is now more critical than simply buying into a broad theme like AI.
The approaching government shutdown adds a layer of uncertainty, which typically drives up market volatility. Buying straddles on the S&P 500 (SPY) could be a way to profit from the increased price swings we expect as politicians fail to reach a budget deal. We saw during the 35-day shutdown that spanned 2018 and 2019 how a lack of official data like inflation and jobs reports can disrupt trading models and create erratic market moves.
In contrast to the weakness in equities, copper’s surge to an all-time high points to underlying economic strength. The rally is supported by massive demand from the ongoing green energy transition and the build-out of AI data centers, with recent analyst reports pointing to a potential supply deficit of over 4 million tonnes by 2030. Buying call options on major copper producers or the COPX ETF could capture further upside as this structural demand continues to outstrip supply.
