The US stock market experienced significant fluctuations this week, with investors worried: Is the US economy really strong? Has AI become a negative factor? Have safe-haven assets turned into risk assets?

The US stock market experienced severe fluctuations this week, and the cracks in the market are becoming increasingly clear.

Earlier this week, the market's market capitalization evaporated by more than $1.5 trillion at one point, forcing traders to reassess several previously taken-for-granted assumptions: Can the US economy sustain another year of double-digit growth? Will the efficiency improvements promised by AI inadvertently squeeze the survival space of some existing companies? Has the trading enthusiasm of retail investors turned some assets that should be "safe havens" into high-volatility varieties?

The impact was not limited to software stocks. Small-cap stocks, precious metal mining companies, digital asset-related firms, and professional service companies all showed weaknesses in the same week. Among them, the volatility in the software sector was the most alarming, with momentum stocks primarily composed of large tech companies experiencing their largest single-day decline since the pandemic.

Uncertainty continues to spread. Mike Dickson, head of research and quantitative strategies at Horizon Investments, said: “When investors get nervous, those assets and sectors with valuations and positions stretched to the limit often feel the pain first.” Even if a rebound occurs afterward, he cautioned that such "bounces after a big drop" often happen when the pressure has not yet been relieved.

Thomas Thornton, founder of Hedge Fund Telemetry LLC, stated:

The market is full of pitfalls, and some of these pitfalls are turning into traps for specific assets and sectors.

Small-cap stocks face double whammy

At the beginning of this year, investors shifted from overvalued tech stocks to companies benefiting from economic growth recovery and declining interest rates, with small-cap stocks being a primary target. This bet soured over the past week, partly because investors nearly sold off all their holdings.

The main issue stems from three sets of labor market data indicating concerning weakness in the US economy. This weakness particularly affects small-cap stocks that are primarily domestic market-focused, as their revenues heavily depend on domestic demand. Coupled with the impact of AI on employment and business, small financial and tech companies are more susceptible to disruption. The 7.6% gain in the Russell 2000 index since the beginning of the year suddenly seems overly optimistic.

"The stock market may be sensing the increasing pressure on consumers as labor market data continues to cool," said Cameron Dawson, chief investment officer at NewEdge Wealth. A surprisingly strong consumer confidence data released on Friday curtailed the sell-off, but prior to that, the Russell 2000 index had already fallen more than 5% from its recent peak.

Precious metals reduced to "gambling tools"

The price fluctuations of gold and silver have clearly deviated from the realm of "stability," and the stock prices of related metal companies naturally followed suit.

Newmont Corp., the largest gold mining company in the US, doubled by 2025, while some smaller mining companies like Discovery Silver Corp. surged by 1000%. However, this trading dynamic is now rapidly unraveling. The VanEck Gold Miners ETF plummeted 13% on January 29, marking its largest drop in over five years "These metals have transformed from boring commodities traded by professionals into exciting gambling tools for retail investors," wrote Owen Lamont, Senior Vice President and Portfolio Manager at Acadian Asset Management LLC.

This is concerning for investors trying to view gold mining companies as a safe haven during turbulent times. Double-digit daily and weekly volatility is hardly characteristic of risk aversion. "Almost every theme has been pushed to extremes, and gold and silver are no exception," said Sameer Samana, Head of Global Equity and Real Assets at Wells Fargo Investment Institute.

Equity Capital Markets Face AI Impact

As software companies like Docusign Inc., Salesforce Inc., and Workday Inc. plummet due to concerns that AI tools may replace their businesses, investors are beginning to search for other areas in the economy that could be disrupted by robots.

According to a report from the Conference Board last October, 72% of S&P 500 companies have updated disclosures, stating that AI poses a "significant risk" to their businesses. Banks, travel stocks, professional service providers, and the entire small-cap sector are under scrutiny.

If AI disruption becomes destructive, equity capital market activities, from mergers and acquisitions to IPOs to stock and bond sales, may slow down. Truist Securities analyst Brian Foran noted in a report on Thursday that tech sector M&A grew 77% last year and is expected to make significant contributions to the banking capital markets sector again this year. "A few weeks of poor trading won't necessarily derail this trend—but it won't help either," he said.

Beyond banking and financial services, investors are also seeing the impact of the software stock plunge extend to the broader professional services sector. Stocks like Thomson Reuters Corp. and Morningstar Inc. have plummeted by double digits this week.

Keith Lerner, Chief Investment Officer and Chief Market Strategist at Truist Advisory Services, put the issue quite realistically: “Should I continue to hire external companies, or let AI do part of the work for me?” He believes that industries such as online education, media and advertising, outsourcing, and market research may see revenues directly squeezed by AI.

Warning from the Internet Bubble

The sharp decline in the tech sector evokes memories of the internet bubble. In fact, the speed at which value stocks have outperformed growth stocks was last seen during the market crash of 2022 and the early days of the internet bubble.

Brian Reynolds, Chief Market Strategist at Reynolds Strategy LLC, pointed out that after 25 years, internet-era darlings like Corning Inc. and Cisco Systems Inc. have finally surpassed their highs from back then. He believes this serves as a warning to investors still enamored with the biggest AI concept stocks, whose prices have tripled or more in recent years "History doesn't repeat itself, but it often rhymes," Reynolds quoted Mark Twain. "In a bubble, you must be very disciplined and diversify your investments. If you have a soaring stock, you should reduce your holdings."