Wall Street closed sharply lower on Thursday, pulled down by tech and discretionary stocks. Investor mood continued to be driven by risk-off sentiment as rising fears about heavy artificial intelligence (AI) spending and weak labor-market data triggered broad tech sell-offs. All three benchmark indexes finished in the red.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) lost 1.2%, or 592.58 points, to close at 48,908.72. Eighteen components of the 30-stock index ended in negative territory, while 12 ended in the positive.

The tech-heavy Nasdaq Composite fell 363.99 points, or 1.6%, to close at 22,540.59.

The S&P 500 slid 1.2%, or 84.32 points, to close at 6,798.4. Nine of the 11 broad sectors of the benchmark index closed in the red. The Materials Select Sector SPDR (XLB), the Consumer Discretionary Select Sector SPDR (XLY) and the Technology Select Sector SPDR (XLK) declined 2.8%, 2.6% and 1.7%, respectively, while the Consumer Staples Select Sector SPDR (XLP) gained 0.3%.

The fear gauge CBOE Volatility Index (VIX) increased 16.8% to 21.77. A total of 24.6 billion shares were traded on Thursday, higher than the last 20-session average of 19.9 billion. Decliners outnumbered advancers by a 1.8-to-1 ratio on the S&P 500.

Risk-Off Sentiment Dominates Wall Street

Investor mood on Wall Street remained firmly risk-off on Thursday as markets struggled to find confidence amid mounting concerns over heavy AI-related capital spending and fresh signs of weakness in the U.S. labor market. Technology stocks bore the brunt of the selling, with investors increasingly uneasy about whether massive investments in AI will translate into sustainable earnings growth anytime soon. The fear is not that AI lacks potential, but that valuations have raced far ahead of near-term returns, leaving little room for disappointment. Discretionary stocks also felt the heat.

At the same time, softer labor-market data reinforced worries that economic momentum may be cooling, complicating the Fed’s policy outlook. While weaker jobs data can eventually support rate cuts, in the near term, it heightened anxiety about slowing corporate revenues and tighter profit margins. This combination pushed investors toward safer assets and away from growth-heavy sectors that had led the market for much of the previous year.

The sell-off in software stocks deepened, dragging the iShares Expanded Tech-Software Sector ETF (IGV Quick QuoteIGV - Free Report) down another 5%. With weekly losses now exceeding 11%, the fund is on course for its sharpest weekly decline since 2008.

One can argue that the session reflected a cautious recalibration rather than panic, with investors reassessing risk as optimism around AI meets economic reality. Consequently, shares of Salesforce, Inc. (CRM Quick QuoteCRM - Free Report) and Microsoft Corporation (MSFT Quick QuoteMSFT - Free Report) declined 4.8% and 5%, respectively. While CRM carries a Zacks Rank #2 (Buy), MSFT has a #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

For the week ending Jan. 31, initial jobless claims were 231,000, an increase of 22,000 from the previous week's unrevised level of 209,000. The 4-week moving average was 212,250, an increase of 6,000 from the previous week's unrevised average of 206,250.

Continuing claims during the week ending Jan. 24 were 1,844,000, an increase of 25,000 from the previous week's revised level. The previous week's level was revised down by 8,000 from 1,827,000 to 1,819,000. The 4-week moving average was 1,850,750, a decrease of 14,750 from the previous week's revised average. This is its lowest level since Oct. 5, 2024, when it was 1,845,750. The previous week's average was revised down by 2,000 from 1,867,500 to 1,865,500.