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Stock market today: Bonds and Bitcoin sell off on AI, economic fears

NEW YORK — A potent wave of fear swept across global financial markets on Thursday, triggering a broad-based sell-off as investors grappled with a trifecta of concerns: the staggering cost of the artificial intelligence arms race, mounting signs of a sharp economic slowdown, and a deepening crisis in cryptocurrency markets. The synchronized downturn erased gains across equities and digital assets, sending market participants scrambling for the relative safety of government debt.

The risk-off sentiment was palpable on Wall Street. By midday, all three major U.S. indices were nursing significant losses, reflecting a stark reversal from the bullish conviction that has characterized markets in recent years.

The Big Picture: A Market in Retreat

Investor sentiment soured dramatically as a confluence of negative catalysts hit the market simultaneously. The sell-off was not confined to a single sector but was widespread, indicating a fundamental reassessment of risk.

Just before noon ET on February 5, the state of the market was clear:

• S&P 500: The broad market benchmark fell over 1% to trade near 6,810.
• Dow Jones Industrial Average: The 30-stock index shed 1%, hovering around 49,025.
• Nasdaq Composite: The tech-heavy index, a key barometer for AI enthusiasm, led the declines with a 1.2% drop to approximately 22,636.

While the indices had pared some of their earlier, deeper losses, the direction was unambiguously negative, underscoring the fragile confidence among traders and long-term investors alike.

AI's Double-Edged Sword: The Cost of Innovation

For months, the promise of artificial intelligence has propelled technology stocks to record highs. On Thursday, however, the market was forced to confront the colossal price tag attached to that promise.

The trigger was a stunning announcement from Google parent Alphabet on February 4. The tech giant revealed plans for capital expenditures of up to $185 billion to build out the infrastructure required to support next-generation AI technologies. The figure, a new benchmark in corporate investment, sent a chill through the sector.

Investors immediately recalibrated their expectations, shifting focus from the potential future revenues of AI to the very real and immediate impact on corporate profitability. Alphabet's stock tumbled more than 3% on the news.

• The Capex Arms Race: Alphabet's announcement signals a massive spending war among tech titans. Companies feel compelled to invest billions in data centers, custom chips, and computing power to remain competitive, placing immense pressure on their balance sheets.
• Margin Pressure: This level of expenditure directly threatens profit margins. Investors are now questioning whether the eventual payoff from AI will justify the enormous upfront costs, leading to a repricing of tech valuations.
• A Shifting Narrative: The market narrative is evolving from one of boundless AI-driven growth to a more sober assessment of the technology's economic realities. The question is no longer just "how much can AI earn?" but also "how much will it cost?"

Economic Headwinds Gather Storm

Adding to the anxiety, a series of economic reports released Thursday painted a grim picture of the U.S. labor market, fueling fears of a looming recession. The data suggested a more rapid deterioration than economists had anticipated.

The reports showed that planned job cuts surged to their highest level since the financial crisis of 2009, a stark warning sign for the health of corporate America. Simultaneously, the number of job openings fell, indicating that hiring is slowing down significantly.

• Recessionary Signals: A weakening labor market is a classic precursor to an economic downturn. Fewer jobs and less hiring lead to reduced consumer spending, which accounts for the majority of U.S. economic activity. The comparison to 2009 has put the market on high alert for a potential hard landing.

Crypto's "Death Spiral" Warning

The carnage was most severe in the digital asset space, where Bitcoin plunged to its lowest point since 2024. The catalyst was a dire warning from famed investor Michael Burry, whose successful bet against the housing market in 2008 was immortalized in "The Big Short."

In a widely circulated note, Burry wrote that Bitcoin's precipitous fall could "set in motion a death spiral leading to massive value destruction." He warned of a dangerous feedback loop.

Compounding the panic, Treasury Secretary Scott Bessent stated in congressional testimony on February 4 that the U.S. government would not intervene to support cryptocurrency prices by purchasing assets, effectively removing any hope of a federal backstop.

• Burry's Dire Forecast: Burry argued that as prices fall, leveraged investors face margin calls, forcing them to liquidate not only their crypto holdings but also other assets, such as stocks, to raise cash. This forced selling can create a cascade of further price drops—a "death spiral."
• Contagion Risk: The fear is that the crypto crisis will not be contained. The potential for forced selling of equities to cover crypto losses links the digital asset rout directly to the stability of the broader stock market.
• No Government Bailout: Secretary Bessent's clear statement eliminated the "moral hazard" of a potential government rescue. This policy clarity, while prudent, meant crypto investors were left to face the market's wrath alone, accelerating the sell-off.

By midday, Bitcoin was trading around $67,389, down a staggering 8.5%. Other digital assets followed suit, with Ethereum off more than 7% to near $1,966.

A Tale of Two Havens: Bonds Rise as Gold Falters

In a classic flight to safety, investors poured capital into U.S. government bonds. As demand for the debt surged, prices rose, pushing yields lower.

• Flight to Quality: The benchmark 10-year U.S. Treasury yield slid nearly 7 basis points to about 4.206%. This movement indicates that, despite concerns about the U.S. economy, investors still view government bonds as the ultimate safe-haven asset during times of market turmoil.

Interestingly, gold, another traditional haven, failed to catch a bid. The yellow metal fell another 2% to about $4,851 an ounce. Analysts speculate this could be due to liquidations by investors needing to cover losses elsewhere, or simply a stronger preference for the liquidity and security of U.S. Treasurys in the current environment.

The Path Forward

With multiple pressure points converging, investors are left to navigate a treacherous landscape. The market's focus now turns to upcoming data and corporate commentary for clues on where the economy and corporate profits are headed.

Key items to watch include the Federal Reserve's response to the weakening labor data, further earnings reports from major tech companies for more insight into AI spending plans, and the stabilization—or continued collapse—of cryptocurrency prices.

For now, the bullish certainty of recent months has been shattered, replaced by a potent cocktail of fear and uncertainty. Investors are bracing for further volatility as they weigh the heavy costs of innovation against the growing threat of recession.