Why Did The US Stock Market Crash? AI Fears, Inflation Data Trigger $1 Trillion Selloff

Wall Street delivered a brutal reminder of how quickly sentiment can turn. In a single trading session, roughly $1 trillion in market value was wiped out as investors dumped technology and transport stocks, triggering a broad-based sell-off across major US indices.

By the closing bell on Thursday, the technology-heavy Nasdaq had slumped 2 per cent. The S&P 500 and the Dow Jones Industrial Average each fell more than 1 per cent, reversing early gains and ending the day deep in the red, reported Reuters. What began as a positive session swiftly unravelled as anxiety over artificial intelligence (AI), interest rates, and economic data converged.

Tech Stocks Lead the Fall

The heaviest blow landed on the technology sector. Investors, already debating whether AI enthusiasm has run ahead of fundamentals, found fresh reasons to reduce exposure after Cisco Systems delivered a quarterly update that failed to impress.

Cisco shares plunged 12.3 per cent, their biggest one-day sell-off since May 2022, after the networking equipment provider reported quarterly adjusted gross margin below estimates. The stock became the fifth-biggest drag on the S&P 500.

The disappointment spilled over into other mega-cap names. Highly liquid giants such as Apple, Nvidia, Broadcom and Amazon.com came under pressure as investors trimmed positions in richly valued technology stocks.

The Dow Jones Industrial Average dropped 669.42 points, or 1.34 per cent, to 49,451.98. The S&P 500 shed 108.71 points, or 1.57 per cent, to 6,832.76. The Nasdaq Composite fell 469.32 points, or 2.03 per cent, to 22,597.15.

AI Spending Under the Microscope

The broader concern is not just quarterly performance but the scale of investment. Amazon, Google, Meta and Microsoft are collectively expected to spend around $650 billion this year in the race for AI dominance.

While these investments underscore the strategic importance of AI, they have also revived worries about whether such aggressive capital expenditure will translate into proportional earnings growth.

The S&P 500 software index fell 1.7 per cent for a second consecutive session, erasing much of last week’s recovery. AppLovin was the sharpest percentage decliner during the session, tumbling 19.7 per cent after reporting fourth-quarter results amid intense competitive pressure, the news agency reported.

Even semiconductor stocks, which have generally outperformed software peers in recent weeks, were not spared. The Philadelphia SE Semiconductor index finished down 2.5 per cent.

Transport Stocks Hit by Automation Fears

Beyond technology, transportation shares suffered a particularly severe blow. The Dow Jones Transport Average sank 4 per cent as investors worried that automation and AI tools could disrupt logistics and trucking companies.

Landstar plunged 15.6 per cent, CH Robinson fell 14.5 per cent, and Expeditors International dropped 13.2 per cent.

Market nerves intensified after reports that AI firm Algorhythm Holdings unveiled a new tool targeting trucking companies, reinforcing concerns about technological disruption. Interestingly, Algorhythm shares ended the session up nearly 30 per cent, highlighting how investors are rewarding perceived disruptors while penalising traditional operators.

Scott Helfstein, head of investment strategy at Global X, pointed to weakness in transportation hiring in the latest jobs report. He suggested that when combined with automation risks and softer demand expectations, the sector became especially vulnerable.

Inflation Data Looms Large

Macro uncertainty added to the selling pressure. A stronger-than-expected jobs report earlier in the week raised doubts about how soon the Federal Reserve might cut interest rates.

Investors are now bracing for the January Consumer Price Index report, due before the next session’s open. The concern is that persistent inflation could delay rate cuts, tightening financial conditions further.

Thursday’s data showed that new applications for unemployment benefits fell by less than expected last week, partly due to lingering winter storm disruptions. However, the figures did little to calm concerns about policy direction.

Not All Stocks Fell

Amid the carnage, a few pockets of resilience emerged. Equinix shares rallied 10.4 per cent after the data-centre operator forecast annual revenue above estimates, betting on sustained AI-linked demand. It was the biggest gainer in the S&P 500 real estate index.

However, personal computer makers struggled after China’s Lenovo warned of shipment pressure stemming from a memory-chip shortage. HP declined 4.5 per cent and Dell Technologies tumbled 9 per cent.

Broad-Based Selling Across Markets

The sell-off was not confined to a handful of names. On the New York Stock Exchange, declining stocks outnumbered advancers by a 2.17-to-1 ratio, with 748 new highs and 229 new lows.

On the Nasdaq, 1,305 stocks rose while 3,581 fell, producing a 2.74-to-1 negative ratio. The S&P 500 recorded 99 new 52-week highs and 32 new lows.

Trading activity surged as 22.45 billion shares changed hands on US exchanges, compared with the 20.78 billion average over the previous 20 sessions.

A Reality Check for Wall Street

Thursday’s $1 trillion wipeout reflects a convergence of factors: AI optimism being tested, capital spending scrutinised, transportation disruption fears, and renewed inflation uncertainty.

Investors appear to be shifting from enthusiasm to evidence. As markets reassess valuations and economic signals, volatility may remain elevated in the near term.