The U.S. stock market is undergoing a rare, broad-based panic sell-off, with AI disruption expectations cascading through various industry sectors like dominoes.
A Goldman Sachs trader, Ryan Shakey, described the current market as "extremely fragile," noting that over 40 S&P 500 constituents experienced abnormal volatility exceeding 3 standard deviations on Friday—the highest level in his memory. This scale of volatility far surpassed the 15 stocks from the previous trading session.
The market displayed a clear defensive tilt, with utilities, consumer staples, real estate investment trusts (REITs), and healthcare sectors leading gains, while technology, media, and telecom (TMT) sectors suffered heavy losses. Goldman Sachs' AI exposure basket (GSTMTAIR) again experienced a sharp drop of 3 standard deviations, declining 510 basis points in a single day.
The latest trigger for market panic was commentary from Microsoft's AI business lead. The executive reportedly stated that most white-collar jobs could be replaced by AI within 12 months, claiming that "AI models' programming capabilities have surpassed humans." This prompted investors to reassess the scope and speed of AI disruption.
Most alarming to traders is the widespread loss of appetite for buying market dips. Goldman Sachs' trading desk observed that while hedge funds and long-only institutions were selling, the scale was relatively small, indicating that "fatigue is accumulating." The limited buying interest was concentrated solely in cyclical and defensive sectors like industrials, consumer staples, utilities, REITs, and energy.
Market breadth deteriorated sharply, with 350 constituents of the S&P 500 declining on Friday. Apple, Amazon, Microsoft, Meta, and Cisco were the largest drags on the index. Activity levels at Goldman's trading desk surged from 4/10 in the early session to high levels, with inquiry volumes reaching a two-week peak.
Factor rotation exhibited extreme characteristics. Defensive sectors became safe havens, while previously strong technology stocks suffered a comprehensive rout. Traders noted the most striking feature was investors' "complete unwillingness to buy any AI-related dips," a phenomenon observed across all industry sectors.
Logistics emerged as the latest casualty, with financials and healthcare also under pressure, and technology stocks collapsing across the board. Transportation stocks within the industrial sector became a focal point on Friday. Logistics firm C.H. Robinson experienced a catastrophic 8 standard deviation plunge, highlighting how AI panic is spreading from technology to traditional industries.
According to Goldman's industrial sector trader Novak, AI has been systematically targeting industries over the past week or two, searching for potential "losers." The sell-off in C.H. Robinson reflects a complete 180-degree shift in investor attitude—the company was previously viewed as an AI beneficiary. The debate centers on whether using chatbots for freight matching, while improving efficiency and reducing labor costs, might also lead to business commoditization.
Alternative asset managers turned lower after opening higher, and bank stocks began to waver. Goldman's financial sector trader Degrasse noted that super-regional banks, previously seen as "attractive safe havens" within the financial sector, are seeing that logic unravel.
Defensive REITs continued to advance, but strong earnings from commercial real estate services firm CBRE failed to lift its stock price. Traders commented that "earnings clearly don't matter in this market environment," although bulls insist they eventually will.
Contract research organizations (CROs) in the healthcare sector have plummeted 32% month-to-date, following Pfizer's announcement that it will use AI for most clinical trials. ICLR fell 38% on Friday alone, further battering this subsector.
Within the TMT sector, everything except memory chips declined. Software, internet, and newly pressured media stocks all faced selling pressure. Goldman's TMT trader indicated that previous "winner" stocks were being sold off amid the risk-aversion sentiment.
The market is reassessing companies previously seen as AI winners, with valuation factors beginning to matter. Investors are perplexed about "what exactly is wrong with these earnings reports," but in the current panic, fundamental analysis appears to have been discarded.