Fed pause, hiring freeze and market panic hit investors on three fronts

Wall Street’s fear gauge spiked to its highest level since November last week. The CBOE Volatility Index, known as the VIX, jumped above 20 on Thursday as technology shares tumbled on concerns that massive artificial intelligence investments might not pay off.

Though it sits currently on 18.43, that level still signals elevated anxiety. Normal market conditions see the VIX around 15.

The nervousness isn’t just tech. Data from Cboe Global Markets, reported by the Wall Street Journal, shows the options “skew” measure for the iShares Russell 2000 fund reached its highest reading since November this week. When skew climbs, traders are paying more for protection against drops than for bets on gains.

Amazon disclosed plans to spend $200 billion on infrastructure this year, $50 billion more than analysts expected and 50 percent higher than last year. The stock dropped over 7.5 percent before Friday’s opening despite solid holiday sales numbers.

Friday brought a sharp rebound. The Dow hit 50,000 for the first time. The Nasdaq jumped 2.2 percent. But the S&P 500 still finished the week down 0.1 percent. The Nasdaq fell 1.8 percent for the week. Both indexes had gone negative for 2026 before Friday’s bounce.

Big rallies after big drops don’t necessarily mean the danger has passed.

Microsoft and Alphabet got similar reactions when they disclosed their spending plans earlier in the week. These tech giants collectively plan to pour $660 billion into AI this year.

Clark Bellin from Bellwether Wealth put it bluntly: “The bull market is not dead, but it is aging.” What looked like smart investments six months ago now looks like reckless spending.

Software companies keep bleeding

Software stocks had a brutal week. An ETF tracking the sector gained 3.5 percent Friday but still finished down more than 9 percent for the week. Year to date, it’s down over 24 percent.

AI tools like Anthropic’s Claude Code can now handle tasks that used to require expensive software subscriptions. If adoption picks up, subscription-based companies face serious revenue problems.

Brian Levitt from Invesco thinks the selling went too far. “You’re getting to a point where this probably seems overdone,” he said on Yahoo Finance’s Morning Brief. “We’ve seen some names taken out pretty significantly.”

Mike O’Rourke from JonesTrading disagrees. Bigger companies will probably survive, but “there are new risks out there,” he told Yahoo Finance. He pointed to Alphabet’s earnings call where executives discussed productivity gains from AI. Instead of reassuring investors, that made them more worried.

Bitcoin fell close to $60,000 on Thursday. First time below $70,000 since November 2024. That wiped out every gain since Trump’s inauguration. Friday’s bounce took it back above $70,000, but the damage was done.

Strategy reported a $12.4 billion quarterly loss Thursday. Gemini cut 200 jobs and closed all offices outside the U.S. and Singapore.

Bitcoin’s correlation with risk assets had strengthened heading into 2026. Treasury Secretary Scott Bessent made things worse by suggesting the government wouldn’t rescue the crypto industry.

Crucial week ahead as data contradicts optimism

This week brings the delayed January jobs report on Wednesday, plus fresh inflation numbers. Both influence what the Fed does with interest rates.

Recent employment data hasn’t looked good. Job openings fell to a 5.25-year low in December. Private employers added just 22,000 jobs in January per ADP. January layoff announcements hit their highest level since 2009.

Lower rates would help tech stocks recover. But with inflation still above 3 percent, Fed officials have shown little interest in cutting before March at the earliest.

Analysts still expect S&P 500 companies to grow profits by 14 percent in 2026 according to FactSet. That optimism clashes with current market behavior. Either earnings estimates will get cut, or stocks really are oversold.

Cryptopolitan showed global tech spending should reach $5.6 trillion in 2026, up nearly 8 percent. Markets see waste and risk instead of opportunity.

Sam Altman from OpenAI warned on a live tech podcast TBPN that software stocks face more sell-offs ahead. Morningstar analysts expect multiple bouts of volatility throughout 2026.

Some strategists recommend rotating into defensive plays. Consumer staples and energy have outperformed tech this year. Technology stocks are actually negative for 2026.

Friday’s rally provided temporary relief. But it didn’t solve the underlying problem: investors don’t know if AI spending will generate returns fast enough. Markets that bounce 2 percent one day after dropping 1.5 percent the day before aren’t healthy. They’re nervous markets trying to figure out what comes next.

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