United States
Wall Street endured a bruising session overnight as a brutal selloff in software stocks sent the major indices tumbling, though beneath the surface a notable rotation into economically sensitive sectors offered some hope that the bull market remains intact.
The S&P 500 slid 0.8 per cent to 6,918, retreating from near-record territory, while the tech-heavy Nasdaq 100 bore the brunt of the selling with a 1.6 per cent decline. The Dow Jones Industrial Average fared somewhat better, shedding 0.3 per cent.
The catalyst for the tech carnage was the release of a new artificial intelligence automation tool from Anthropic, which spooked investors into dumping shares of companies perceived as vulnerable to AI disruption. The selling began in legal software and data services names before snowballing across the broader software sector, with the iShares Expanded Tech-Software Sector ETF plunging around 4.5 per cent.
Gartner tumbled 21 per cent, PayPal cratered 20 per cent, Expedia lost 15 per cent and Intuit shed 11 per cent. Even Australian-listed Atlassian was caught in the crossfire, dropping 7.7 per cent in New York trading.
Yet the headline losses masked a more constructive picture underneath. Despite the major benchmarks finishing lower, most stocks in the S&P 500 actually rose on the day. The Russell 2000 index of small companies added 0.3 per cent, while an equal-weighted version of the S&P 500 edged only marginally lower.
The divergence reflects what many observers are describing as a rotational bull market, with capital flowing out of the high-flying technology names that have dominated for three years and into cyclical and value stocks tied more closely to the economic cycle. FedEx extended a record-breaking rally while Walmart topped a US$1 trillion market capitalisation for the first time.
Geopolitical tensions added another layer of complexity after the US Navy shot down an Iranian drone heading toward an aircraft carrier in the Arabian Sea. Energy stocks rallied on the news, with crude oil jumping as investors priced in fresh supply disruption risks.
On the corporate front, Walt Disney announced Josh D’Amaro will succeed Bob Iger as chief executive, while Banco Santander agreed to acquire Webster Financial for US$12 billion in a significant bet on the American market. Palantir Technologies delivered a revenue forecast that significantly exceeded expectations, though the positive news failed to lift the broader tech sector.
Europe
European equities managed to close at an all-time high despite being buffeted by similar AI disruption fears that hammered their US counterparts.
The Stoxx 600 edged up 0.1 per cent, though the gains were heavily skewed towards defensive and resource-oriented sectors. Professional analytics providers RELX and Wolters Kluwer both plunged more than 10 per cent following Anthropic’s AI tool release, with a Barclays basket of stocks considered vulnerable to artificial intelligence disruption tumbling 6.9 per cent.
Basic resources were the standout performers, surging 4.2 per cent to their highest level since 2008 as copper and gold prices rebounded sharply. Anglo American jumped 7.2 per cent, Rio Tinto added 3.5 per cent to a record close, and Glencore gained 3.3 per cent after agreeing to sell a stake in its African copper business to a US government-backed group.
The energy sector also shone, climbing 1.5 per cent to a 2008 high as oil prices firmed. Siemens Energy rallied 4.7 per cent after announcing plans to invest US$1 billion in American manufacturing capacity over the next two years.
Banks closed at their best level since 2008, with ING gaining 3.1 per cent following an upgrade. Media stocks suffered their worst session since 2020, dragged lower by advertising agency Publicis after it issued conservative guidance.
Australia
Australian shares are set for a softer start to Wednesday’s trading, with S&P/ASX 200 futures pointing to an early decline of around 0.5 to 0.6 per cent.
The local market closed higher on Tuesday, adding 0.9 per cent to 8,857, though that rally came before the full extent of the overnight tech rout became apparent. Mining shares led the gains as rebounding metals prices lifted BHP and Rio Tinto.
The Reserve Bank of Australia raised the cash rate by 25 basis points to 3.85 per cent, becoming the first major economy to hike rates in 2026. The central bank cited persistent domestic inflation pressures, with Governor Michele Bullock’s remarks suggesting further tightening could be on the table. Bond traders are now pricing a strong chance of another rate increase by May.
Pinnacle Investment Management released first-half results showing net income of $67.3 million. Charter Hall Social Infrastructure REIT lifted first-half earnings and upgraded its full-year distribution outlook following strong rental growth. Amcor reaffirmed its full-year guidance overnight, with synergies from its US$13 billion Berry acquisition tracking at the upper end of expectations.
Rio Tinto will draw attention given reports a US-backed group will acquire a stake in Glencore’s Congo copper mines, potentially affecting the ongoing merger discussions between the two mining giants.
Commodities and currencies
Precious metals staged a dramatic recovery after last week’s historic rout, with gold jumping 6 per cent to around US$4,939 an ounce and silver surging more than 11 per cent to US$85.54.
Oil prices climbed on escalating Middle East tensions following the Iranian drone incident. Brent crude gained 2.6 per cent to US$68 a barrel, while West Texas Intermediate rose 3 per cent to US$64.
Bitcoin extended its slide, falling as much as 7 per cent to briefly dip below US$73,000 before recovering to around US$76,000. The cryptocurrency has now erased all gains since President Donald Trump’s election victory, down roughly 40 per cent from its early October record.
The Australian dollar jumped back above US70 cents, gaining 1.1 per cent to 70.24 US cents as the greenback weakened broadly following its biggest back-to-back advance since April. The euro rose 0.3 per cent to US$1.1824.
Bond yields were little changed overnight, with the US 10-year yield steady at 4.27 per cent. Australian government bonds sold off following the RBA decision, with the three-year yield rising 6.5 basis points to 4.31 per cent and the 10-year yield adding 3.6 basis points to 4.83 per cent.
Economic Calendar
US:
- MBA Mortgage Applications 23:00
- ADp Employment Change Jan 00:15
- ISM Services Index Jan 02:00
EU:
- CPI Core YoY and MoM 21:00
This article was written by Calvin Curdie, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
