Late-night plunge across the board! "AI Super Storm" strikes the US stock market!

“AI Super Storm” Strikes the U.S. Stock Market

Due to a dual impact of AI (artificial intelligence) panic trading and the rekindling of tariff war risks, the U.S. stock market plummeted across the board overnight, with the Dow dropping over 821 points, and both the Nasdaq and S&P 500 indices falling more than 1%. Most large tech stocks in the U.S. declined, software stocks faced heavy selling again, and the VIX fear index surged over 10%.

Goldman Sachs’s latest data shows that institutional investors are selling U.S. stocks at the fastest pace in four years and buying downside protection. The one-month options skewness of the S&P 500 has risen to its steepest level in four years, driven by expensive downside put options and cheap upside call options.

All-Index Decline

On the evening of February 23 Beijing time, after the U.S. stock market opened, the three major indices all plunged. By the close, the Dow had fallen over 821 points, down 1.66%; the Nasdaq dropped 1.13%; and the S&P 500 declined 1.04%.

Most large tech stocks in the U.S. declined, with Microsoft dropping over 3%, Amazon, Meta, and Tesla falling more than 2%, and Google down over 1%. Nvidia, which is set to release earnings this week, rose 0.91%, and Apple increased by 0.6%.

Analysts pointed out that Monday’s U.S. stock market experienced a “wave of AI shocks” and a rekindling of tariff war risks, leading to renewed heavy selling in financial and software stocks.

On the news front, AI startup Anthropic announced the launch of a new programming feature for its Claude Code product, automating most research and analysis work for the COBOL programming language, raising concerns about IBM’s mainframe business prospects. IBM’s stock price plummeted over 13% on Monday, marking its largest single-day decline in more than 25 years, with a total drop of 27% so far in February, potentially the worst monthly decline in decades.

Other software stocks also suffered heavy losses, with the software ETF IGV falling nearly 5%, continuing to hit a two-year low and likely to post its worst monthly performance since 2008. Among them, Applovin and CrowdStrike dropped over 9%, Oracle fell over 4%, and C3.ai and Palantir declined over 3%.

Additionally, a widely circulated article titled “The Intelligent Crisis of 2028” further fueled investor fears. The article, based on a macro research report published in June 2028, speculates on the impact of AI technological advances and the proliferation of intelligent agents on society and the economy.

The article presents a fictional hypothesis: that AI repeatedly surpasses optimistic expectations, which does not necessarily benefit assets and the economy. Instead, abundant machine intelligence could squeeze labor income and consumption cycles, triggering demand contraction and financial re-pricing driven by a “productivity boom.”

By the close of the U.S. stock market, the stocks mentioned in the article generally declined. Notably, food delivery platform DoorDash and Blackstone fell over 6%, American Express dropped over 7%, and Uber and Visa also declined.

In response, JonesTrading chief market strategist Michael O’Rourke said, “This is a shocking market reaction. In the face of real negative news, I’ve seen this market show remarkable resilience; but now, a completely fictional piece has directly sent the market into a free fall.”

Regarding tariffs, after most global tariff policies were overturned by the Supreme Court last year, the risk of the U.S. President Donald Trump reigniting a tariff war has sharply increased. Trump warned on Monday that any country attempting to “play tricks” with the Supreme Court ruling would face higher tariffs and more severe consequences. Nevertheless, the EU has decided to suspend approval of trade agreements with Europe and the U.S., adding uncertainty to U.S.-EU trade relations.

As a result, international gold and silver prices surged. Spot gold rose 2.38%, COMEX gold futures increased 3.31%, spot silver jumped 3.99%, and COMEX silver futures soared 7.26%.

The market’s next focus will be on the U.S. President’s State of the Union address scheduled for Tuesday evening (early morning of February 25 Beijing time).

Goldman Sachs Issues Sudden Warning

Goldman Sachs data indicates that the U.S. stock market is currently in an abnormal divergence period characterized by “extreme index calm and sharp individual stock volatility.” Despite the VIX index remaining low, institutional investors are selling U.S. stocks at the fastest pace in four years and buying downside protection.

In a recent report, Goldman Sachs trader Brian Garrett pointed out that recent institutional activity includes selling, shorting, reducing overall exposure, and net exposure—showing defensive behavior “more akin to a VIX level of 35.” The one-month options skewness of the S&P 500 has risen to its steepest level in four years, driven by expensive downside puts and cheap upside calls.

A Goldman Sachs trading desk official said, “We still haven’t seen demand for S&P 500 call options in the trading floor.”

Data shows that long-term asset managers sold a net $4 billion last week and a total of $10 billion so far this month. Hedge funds, through prime brokers, have sold U.S. stocks net for three out of four weeks, with the technology, media, and telecom sectors accounting for 70% of the net sales. Sector-wise, there is a clear divergence: funds are heavily selling software and internet stocks while buying semiconductors and storage chip stocks.

Garrett noted that this is one of the largest monthly selling tendencies by asset managers and pure long-only funds in four years, with other major sell-off months occurring in August 2022 ($18 billion), March 2024 ($14 billion), and March 2025 ($22 billion).

Analysts suggest that the U.S. stock market is approaching a critical test. Global AI leader Nvidia is set to release earnings after the market closes on Wednesday, which could serve as a catalyst for a directional breakout in the market.

(Article source: Securities Times)