“Sell first” AI trade rattles more industries even as inflation data improves

NEW YORK — U.S. stocks finished mixed Friday as a softer inflation report offered some relief to investors, even while a deepening selloff tied to fears about artificial intelligence disruption continued to drag on parts of the market. The S&P 500 edged up slightly, the Dow Jones Industrial Average also posted a modest gain, and the Nasdaq slipped again as several large tech and tech-adjacent names stayed under pressure, leaving all three major indexes with weekly losses.

The day’s tone was set by fresh inflation data that showed price pressures cooling more than expected, a development that typically supports stock prices by easing pressure on the Federal Reserve to keep rates higher for longer. The Wall Street Journal reported that inflation slowed to 2.4% in January from 2.7% in December, helped in part by lower gasoline prices, while core inflation rose 2.5%. The report revived talk that the Fed could have room to cut rates later in the year, even as several categories remained sticky.

But the inflation optimism ran into a powerful counterforce: a widening “AI scare trade” that has punished companies investors think could see profits squeezed as new AI tools commoditize software, professional services, and other white-collar work. Reuters reported that the wave began with software shares and has since spread into sectors such as brokerages, data and analytics firms, insurance brokers, and even real estate services — with investors, in the words of one strategist cited by Reuters, appearing to “sell first” as they reassess business models in a world where AI can replicate high-fee labor.

Markets ended the day reflecting that tug-of-war. According to the Associated Press, the S&P 500 rose 3.41 points to 6,836.17 and the Dow gained 48.95 points to 49,500.93, while the Nasdaq fell 50.48 points to 22,546.67. Even with Friday’s stabilization, all major indexes posted weekly declines, with the Nasdaq taking the biggest hit. Treasury yields fell after the inflation report, a sign investors were pricing in a slightly friendlier interest-rate path.

The split on Wall Street has become more pronounced: pockets of the market that benefit from easing inflation and lower yields are holding up better, while industries viewed as vulnerable to rapid AI-driven competition are seeing sharper repricing. Reuters described billions in market value erased across multiple industries as investors question how defensible certain revenue streams remain if AI tools make it cheaper to write code, prepare taxes, automate customer service, or streamline transactions that have historically supported high margins.

For now, traders are trying to answer two questions at once: whether inflation is cooling fast enough to open the door to rate cuts, and whether the AI shakeout is a temporary panic or the start of a longer reset in how markets value software and services companies. Friday’s action suggested the market is not ready to pick one narrative — yet — and the next round of economic data and corporate guidance is likely to decide which storyline gets the upper hand.