S&P 500 Fizzles as AI Fever Cools: What Investors Need to Know for Next Week
The “unstoppable” bull run of 2025 has hit a wall in February 2026. While the week started with optimism, a wave of “AI exhaustion” has begun to weigh on the tech giants that have carried the market for the last two years. As we head into the President’s Day long weekend, investors are left asking: Is this a healthy pullback or the start of a deeper correction?
At FinanceVetted, we are breaking down the three major factors moving your portfolio right now.
1. The Inflation Victory (A Double-Edged Sword)
Friday’s data brought some of the best news of the year: U.S. consumer prices increased less than expected in January. The annual inflation rate has dropped to 2.4%, the slowest pace since last May.
- The Good News: This has boosted the odds of a Federal Reserve rate cut in June to over 52%.
- The Market Reaction: While you’d expect stocks to soar on this, the S&P 500 only gained a meager 0.03% on Friday. Why? Because the market is now shifting its focus from inflation to growth disruption.
2. The “AI Panic” Trade
The tech-heavy Nasdaq fell 0.23% on Friday as investors began to reassess the valuations of the “Magnificent Seven.” The fear isn’t that AI is failing, but that it’s disrupting legacy software and services faster than companies can adapt.
- The Losers: Heavyweights like Alphabet and Meta saw losses exceeding 1% as “AI panic trading” spread into enterprise software sectors.
- The Winners: It wasn’t all bad news. Walmart hit a historic all-time high of $131.79, joining the elite “$1 Trillion Market Cap Club.” This proves that investors are moving capital away from “pure tech” and into “tech-enabled” retail and defensive sectors.
3. The Road Ahead: FOMC and PCE
With US cash markets closed this Monday for the holiday, all eyes turn to next Wednesday’s FOMC Minutes. Investors are looking for a “granular” look at the internal debates within the Fed.
- The “North Star”: The following Friday brings the PCE report, the Federal Reserve’s preferred measure of inflation. If this print comes in low, it could be the spark that reignites the tech sector.
Vetted Strategy for Next Week
- Diversify into “Old Guard”: Stocks like Walmart and Applied Materials (which surged 8% Friday) are showing that the “pick and shovel” plays of the digital economy are safer than the software developers right now.
- Cash is Still King: With 10-year Treasury yields easing to 4.05%, keeping a portion of your portfolio in high-yield savings (currently yielding over 4%) remains a smart hedge against market “choppiness.”
- Avoid the “Hype” Dips: Don’t rush to buy the dip in AI software just yet. Wait for the FOMC minutes to see if the Fed’s stance on “data-dependency” has truly softened.