A sharp selloff swept through U.S. equities after inflation data surprised to the upside, compounding mounting concerns over artificial intelligence spending, labor disruption, and private credit fragility. The Dow Jones Industrial Average plunged 737 points, or 1.5%, while the S&P 500 fell 0.8% and the Nasdaq Composite lost 1%. All three major benchmarks are now in negative territory for February, underscoring how quickly sentiment has shifted from optimism about AI-driven growth to anxiety over macroeconomic durability and valuation risk.

Sticky Inflation Reignites Policy Uncertainty

January’s producer price index rose 0.5%, well above expectations of 0.3%, while core PPI surged 0.8%, more than double forecasts. The data suggests that inflationary pressures — particularly in services — remain persistent. For investors, the implication is clear: the Federal Reserve may have less room to cut interest rates than markets had anticipated.

Rising wholesale prices also hint that companies could be passing higher input costs, including tariff-related expenses, to consumers. That dynamic complicates the narrative of easing inflation and introduces renewed policy uncertainty. For global investors, including those in Israel closely monitoring U.S. rate trajectories and dollar strength, the message is that financial conditions may stay tighter for longer.

AI Trade Faces a Reality Check

Technology shares, especially those tied to artificial intelligence, extended their recent weakness. Nvidia fell another 2%, adding to the previous session’s 5% decline, despite reporting strong quarterly results. The pullback reflects skepticism over whether hyperscalers can sustain aggressive AI capital expenditures at current levels.

Meanwhile, fintech firm Block announced plans to cut more than 4,000 employees — nearly half its workforce — citing productivity gains from AI tools. While investors initially welcomed the cost discipline, the move amplified concerns about broader labor displacement and cyclical demand risks.

Software stocks struggled across the board. Salesforce declined more than 3%, Microsoft lost over 1%, and Zscaler dropped 15% after missing expectations on deferred revenue and billings. CoreWeave fell 18% following weak guidance. The iShares Expanded Tech-Software ETF is down 10% for the month and 23% year-to-date, signaling that investors are reassessing valuations once supported by AI enthusiasm.

Private Credit and Labor Market Add Pressure

Financial stocks linked to private credit also weakened following the collapse of UK mortgage lender Market Financial Solutions. Apollo fell 8%, Jefferies dropped 10%, and Blue Owl lost 6%, reflecting investor concerns about liquidity and leverage risks in alternative credit markets.

At the same time, labor market signals remain mixed. While headline job growth has been resilient, layoff announcements have surged to their highest January level since the global financial crisis, according to Challenger data. This divergence raises questions about whether unemployment could trend higher in coming months.

Looking ahead, markets appear increasingly sensitive to macro surprises. Inflation data, AI spending trends, and credit stability will likely dictate short-term direction. If price pressures persist and earnings expectations soften, volatility could remain elevated. Conversely, evidence of stabilizing inflation or renewed clarity around AI monetization may help restore confidence.