Trading Day: AI, crypto routs deepen

Market Overview and Key Developments

By Jamie McGeever

Impact of AI on Stock Performance

ORLANDO, Florida, Feb 5 (Reuters) - The tech-fueled stock market selloff snowballed on Thursday and slammed the Nasdaq to its lowest since November, while precious metals prices and bitcoin tanked, as worries over companies' massive AI capex spending and the U.S. job market deepened.

Current State of Cryptocurrency

In my column today, I dig into the "tech wreck" and explain why the AI tide no longer lifts all boats. Buying an index fund and watching the "Mag 7" drive it higher is not a strategy any more - investors must turn to stock picking and active management strategies.

Federal Reserve's Position

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. 'Software-mageddon' leaves investors bargain-hunting butwary 2. Amazon projects $200 billion in capital spending thisyear 3. U.S. job openings drop to more than five-year low inDecember 4. ECB keeps rates unchanged, takes dollar weakness instride 5. Bank of England votes narrowly to hold rates but signalsreduction ahead

U.S. Yield Curve Analysis

Today's Key Market Moves

* STOCKS: A global sea of red. S&P 500 -1.2%, Nasdaq-1.6%, UK and Europe -1%. * SECTORS/SHARES: Nine of 11 S&P 500 sectors fall. Tech-1.7%, materials -2.8%, software -4.6%. Coinbase -13%, SuperMicro Computer -9%, Amazon -10% after Q4 results. * FX: Dollar rises broadly, GBP slides 1% on dovish BoE,NOK -1% on oil. Bitcoin -14% to lowest since October 2024. * BONDS: U.S. rate futures rally strongly, yields slide 10bps at short end to bull steepen the curve. 2s/10s curvesteepest in four years. * COMMODITIES/METALS: Oil -3%, gold -3%, silver -17%,copper -1%.

Today's Talking Points

* And it sure been a cold, crypto winter

The selloff in bitcoin and cryptocurrencies is turning into a rout, making this year's "crypto winter" perhaps the coldest ever. Bitcoin fell 12% on Thursday for its worst day in nearly four years, and has lost half of its value in just four months.

Momentum and technicals are clearly bearish, but at a time of growing dollar debasement fears, shouldn't bitcoin be rising? Obviously not, and the long-term bull cases put forward by crypto enthusiasts are now coming under greater scrutiny too.

* JOLTS shock backs Fed in a corner

Just what the Fed didn't want. After signaling in December that rate cuts are on hold because the labor market appears to be steadying and inflation is more of a concern, figures on Thursday showed a sharp rise in layoffs and a collapse in job openings.

With inflation around 3% and showing few signs of cooling - economic activity is accelerating - strains are intensifying at both ends of the Fed's dual mandate. Presumptive Fed Chair Kevin Warsh has his work cut out.

* U.S. yield curve steepest in four years

The gap between two- and 10-year U.S. yields is more than 70 basis points, the widest in four years. Weak economic data enhances rate cut expectations, strong data points to inflation-boosting growth - we have had both recently, and both steepen the curve.

Of course, a steep curve is consistent with a normal, healthy economy. And it's great for banks. But it can also reflect growing worries over inflation expectations becoming unanchored or other risks that inflate the term premium. Of the two scenarios, that's probably where we are right now.

What could move markets tomorrow?

* Japan household spending (December) * Bank of Japan board member Kazuyuki Masu speaks * India interest rate decision * Germany trade (December) * Germany industrial production (December) * Canada unemployment (January) * Canada PMI (January) * U.S. University of Michigan sentiment (February, prelim) * Global earnings including Toyota, Philip Morris * U.S. Federal Reserve Vice Chair Philip Jefferson speaks

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Jamie McGeever; Editing by Nia Williams)