North American equity markets were dominated by volatility last week, characterized by a rotation out of the lagging technology sector and into the safety of the consumer staples sector, which led the advance. This shift comes as gold and silver prices saw continued volatility following a significant decline from all-time highs in late January, while WTI crude oil prices fluctuated on US-Iran tensions. Market volatility was driven by a reassessment of the AI trade. The software industry sold off globally on fears that AI is disrupting established moats (a long-term competitive advantage) faster than anticipated. This was highlighted by a 16% drop in Reuters’ shares after AI company Anthropic launched automation tools for lawyers that challenge Reuters legal software platforms, one of its three largest business segments. The contagion spread to private credit stocks, which plunged on concerns over their exposure to the software industry. Companies such as Apollo Global Management and Blackstone fell roughly 5%, while Blue Owl Capital and KKR & Co. dropped approximately 10%.

Simultaneously, investors experienced sticker shock over the cost of building AI infrastructure. With the top four "hyperscalers" expected to spend over US$630 billion this year, capital expenditure forecasts weighed heavily on technology giants. Amazon shares tumbled 5.6% after the company raised its planned 2026 outlays to US$200 billion—well above the US$147 billion estimate—and issued lacklustre sales guidance alongside mixed earnings. Similarly, Alphabet (Google) shares dipped 0.5% despite delivering better-than-expected earnings, as investors balked at its plan to hike spending to between US$175 billion and US$185 billion. Meanwhile, AMD shares plummeted 17% even though earnings beat forecasts. The selloff was driven by a revenue decline forecast for the current quarter and doubts about its ability to challenge Nvidia.

With the first full month of investing behind us, we have already witnessed defined sector rotation. While many factors are influencing the ebbs and flows of the market, AI continues to have a major influence. As discussed earlier, the latest market movements reflect concern over AI’s influence. Sector rotation so far this year has been considerable as technology has experienced a sharp selloff while energy has been a notable outperformer. As the market sentiment shifts to a more risk-off mentality, defensive sectors like consumer staples or utilities tend to outperform.

Not all news was negative. Walmart’s market value surpassed US$1 trillion for the first time, fuelled by digital and AI investments, while Elon Musk announced plans to merge his SpaceX (owner of Starlink) and xAI (owner of X, formerly Twitter) companies, targeting a US$1.25 trillion valuation for the combined entity. In economic news, both the Canadian and US manufacturing sectors grew in January for the first time in a year. However, the optimism was capped by falling new orders in Canada and uncertainty over trade policy in the US. The labour market remained murky as a partial government shutdown delayed the official jobs report until this week, while Challenger data showed US employers announced 108,435 job cuts in January, the highest since 2009.