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Early indications of a risk-on mood gave way to aggressive selling as the rotation out of software expanded to include hardware stocks on Thursday. Technology and AI-related names took their toll on all three main equity indexes, while risk-off sectors such as utilities and consumer staples surged.
“There’s clearly a lot going on beneath the surface,” Mizuho analyst Dan O’Regan says, “with no shortage of headlines and chatter driving tape action” amid steep losses for large-cap tech stocks, growth stocks and higher-risk assets generally.
The analyst suggests emerging concerns about the impact of new artificial intelligence (AI) companies on existing sectors and industries are merging with ongoing worries about whether hyperscalers are blowing an AI bubble.
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“The largest spenders are weighing heavily on the NDX today,” O’Regan writes of Microsoft (MSFT, -0.6%), Amazon.com (AMZN, -2.3%), Tesla (TSLA, -2.7%) and Meta Platforms (META, -2.8%) and their effect on the Nasdaq-100 Index.
All four of the Magnificent 7 stocks “have massive index weightings,” the analyst observes, “and ongoing concerns around free cash flow, capex intensity, and return on AI investment continue to attract scrutiny.”
Meanwhile, investors, traders and speculators ponder when the Federal Reserve will make its next move on interest rates, as weaker-than-expected housing starts data drove a mini-bounce in the probability of a rate cut at the next Fed meeting, from 6.4% on Wednesday to 9.8% on Thursday.
After a stronger-than-expected January jobs report, markets will price incoming inflation data when the Bureau of Labor Statistics (BLS) releases the January Consumer Price Index (CPI) report tomorrow morning. The median estimate for CPI based on 12 collected by FactSet is 2.4%.
“If 2.4% is the actual year-over-year increase in the CPI,” FactSet analyst John Butters notes, “it will mark the smallest increase since May 2025 (2.4%). It will also be below the trailing 12-month average of 2.7%.” CPI for December was 2.7%; the median estimate was 2.7%.
Hard times for CSCO and tech stocks
Management guided to third-quarter EPS of $1.02 to $1.04, in line with Wall Street’s $1.03 forecast, on revenue of $15.4 billion to $15.6 billion, which is above a $15.2 billion Street forecast.
“We believe Cisco is uniquely positioned to deliver the trusted infrastructure needed to securely and confidently power the AI-era,” CEO Chuck Robbins said in Cisco’s earnings announcement.
That wasn’t enough for Mr. Market, at least today. CSCO was the worst performer among the 30 Dow Jones stocks, falling 12.3%. UBS analyst David Vogt remains bullish, though.
“Blink and you may miss an opportunity to buy Cisco shares as AI momentum builds,” the analyst says in a post-earnings note. “Cisco reported another strong quarter,” Vogt writes, “as key forward-looking metrics like ‘AI’ and ‘Product’ orders surpassed expectations.”
Vogt sees “increased visibility into not just strong growth in the second half of FY26 but also FY27 given the timing of revenue recognition for ‘AI’ orders.” The analyst reiterated his Buy rating on CSCO stock and raised his 12-month target price from $90 to $95.
Is BUD the king of consumer staples stocks?
BUD, whose roster of iconic brands is led by Budweiser, is up more than 20% so far in 2026 amid a rotation out of mega-cap tech stocks and other names related to the AI trade.
“Beer plays an important role in bringing people together,” CEO Michel Doukeris says in the statement announcing fourth-quarter results for AB InBev, “and creating moments of celebration.”
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Indeed, BUD is a staple because people consume its products in good times and in bad times, making it a solid investment through economic cycles.
By the closing bell on Thursday, the Nasdaq Composite was down 2.0%, at 22,597, the S&P 500 had shed 1.6% to 6,832, and the Dow Jones Industrial Average was lower by 1.3% at 49,451.
