U.S. stocks rebound strongly after a sharp decline, and investors are more nervous.

U.S. tech stocks continue to rebound, as investors weigh concerns over AI against buying opportunities.

On Monday, U.S. stocks extended last Friday’s rally, with the S&P 500 approaching its all-time high again, and the Nasdaq 100 closing up 0.8%, regaining the key 100-day moving average.

(Intraday movement of the U.S. stock benchmark indices on Monday)

Last Friday, the Dow surged over 1,200 points, breaking above the 50,000 mark for the first time, and the S&P 500 recovered its weekly losses. Investors seem to view last week’s sell-off as an “overreaction” and a buying opportunity, with funds rushing back into the market amid volatility.

But the fundamental concerns among investors remain, with doubts about whether AI investments will deliver expected profits. During last Friday’s big rally, Amazon still fell 5.6%, erasing about $133 billion in market value. Alphabet’s stock also declined 2.5%.

This rapid rise and fall has made investors more cautious about where the next risk might emerge. The delayed January employment report and latest inflation data, set to be released this week, could further influence interest rate policies and market sentiment.

Technology sector leads the rebound, but worries over AI spending persist

On Monday, the tech sector performed especially strongly, with both the software and chip sectors, previously “bloodied,” soaring, with Oracle jumping nearly 10%.

(SaaS software stocks continue to rebound from lower levels)

A weaker dollar has provided additional support for risk assets and gold, and market sentiment remains optimistic ahead of key economic reports. Edward Jones senior global investment strategist Angelo Kourkafas said:

The bull market is still intact. We see any pullback as a genuine opportunity to re-enter.

However, even with the stock market rebounding, tension over massive AI investments still looms. JPMorgan Asset Management’s Chief Global Strategist David Kelly noted:

AI seems quite intelligent in programming. Companies won’t abandon software embedded in all their systems overnight, but as a long-term challenge, AI appears to pose a reasonable threat to software.

Last week’s plunge was driven by fears that AI’s disruptive potential could be broader than expected, and concerns over whether tech giants’ investments of hundreds of billions of dollars in AI will generate the high profits anticipated. These worries remain unresolved.

According to Jefferies analysts, hedge funds have been reducing their exposure to software stocks for a long time. At the peak, they sold “extensively” and “completely disregarded prices.”

This round of selling and its chain reaction have prompted investors to reassess AI’s dominant role in the stock market and economy. Long-term, investors worry that the recent surge in AI stocks has made the market overly dependent on a few tech giants, and that the massive spending by the world’s largest companies on AI could mask broader economic weakness.

Poor economic data heightens uncertainty

Recent data has offered little comfort.

According to the Labor Department’s monthly report, U.S. job openings decreased by nearly 1 million last year. HR firm ADP estimates that private sector employment added only 22,000 jobs in January, less than half of market expectations.

The January non-farm payroll report was delayed until this Wednesday due to a brief government shutdown, adding to investor uncertainty about the economy. Kelly said:

Economic data is quite weak. Our current economic situation can only be considered below average, yet the stock market is performing well, which I think is part of the problem.

As investors flee tech stocks, signs indicate funds are rotating into other sectors. The consumer staples sector was the best performer in the S&P 500 last week. Investors often see this sector as defensive, since people still buy essentials even during economic slowdowns.

Cboe Global Markets data shows that the “skewness” indicator for options on the iShares Russell 2000 ETF, which tracks small-cap stocks, reached its highest level since November last week. Higher skewness typically indicates that put options used for hedging against declines are more expensive relative to call options.

Clark Bellin, Chief Investment Officer at Bellwether Wealth in Nebraska, said his firm plans to cut exposure to tech stocks and increase holdings in industrial and materials stocks. Bellin stated:

It makes you wonder what other sectors are almost purely driven by speculation.

Despite some investors expecting strong corporate earnings to support the stock market, according to FactSet data, S&P 500 companies are projected to see a 14% profit growth in 2026, but many still expect volatility to persist into early 2026. Bellin said:

I don’t want to paint a doomsday picture, but I think volatility will continue for a while.

Risk warning and disclaimer

Market risks are present; investments should be made cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest accordingly at your own risk.