Stocks experienced a significant decline on Friday, primarily driven by higher-than-anticipated inflation data and growing concerns about the economic implications of artificial intelligence (AI). The S&P 500 fell by 30 points, or 0.4%, closing at 6,879, while the Dow Jones Industrial Average saw a more substantial drop of 521 points, or 1.1%. The tech-heavy Nasdaq Composite also suffered a setback, falling by 0.9%.
This downturn followed the release of the Producer Price Index (PPI), which tracks price shifts before they reach consumers. In January, inflation at the wholesale level surged by 2.9% on an annualized basis, significantly exceeding economists’ expectations of 1.6%. Analysts speculate that this stronger inflation reading could influence the Federal Reserve’s decision to delay any rate cuts.
In tandem with market uncertainties, oil prices rose as tensions between the United States and Iran escalated over a potential nuclear deal. President Trump has issued threats of military action against Iran if the nation does not curtail its nuclear ambitions. As a result, the price of benchmark U.S. crude increased by 2.8%, settling at $67.02 per barrel, while Brent crude, the international benchmark, rose by 2.4% to $72.48 per barrel.
On Wall Street, fears surrounding AI disruptions intensified, prompting investors to sell off stocks of software companies perceived to be at risk of being displaced by AI-powered competitors. Logan Purk, a senior research analyst at Edward Jones, noted a shift in sentiment among investors: “A year ago, the prevailing thought was that generative AI would provide a boost to sales and overall growth in this sector. Now the narrative has shifted, and investors believe generative AI will replace all software currently being used.”
Block, the parent company of Cash App and Square, exemplified the potential impact of AI. CEO Jack Dorsey announced a significant workforce reduction, cutting nearly half the staff from around 10,000 to 6,000 employees. Following this announcement, Block’s stock surged by 16.8% on Friday. Dorsey stated, “Intelligence tools have changed what it means to build and run a company. We’re already seeing it internally. A significantly smaller team, using the tools we’re building, can do more and do it better.” This trend of embracing AI to justify layoffs has been echoed by other companies like Pinterest and Dow.
The anxiety surrounding AI’s capability to potentially replace human roles has extended to private equity firms that have invested in struggling software companies struggling to adapt to this new landscape. Apollo Global Management, for example, experienced a downturn of 8.5%.
However, not all analysts share the belief that AI will render legacy software companies obsolete. Wedbush Securities analyst Dan Ives argued against such an outlook, stating, “While these use cases are impressive, the reality is that these new AI tools will not rip and replace existing software ecosystems and data environments, with these AI tools only as useful as the data it can reach.”
Despite the broader market downturn, some companies saw gains. One notable performer was Netflix, which rose by 13.8% after stepping back from its bid to acquire Warner Bros. Discovery’s studio and streaming business. This move cleared the path for an alliance with Paramount Skydance. Following Netflix’s decision, Paramount Skydance shares surged by 20.8%, while Warner Bros. Discovery saw a decline of 2.2%.
In the bond market, the yield on the 10-year Treasury note hovered around 3.96%. Following the inflation report, yields briefly increased before settling back down from the 4.02% mark observed late Thursday. Treasury yields often decrease amid market anxiety as investors seek refuge in perceived safer assets.
