US stocks fell on Thursday. The Dow dropped 555 points (1.1%), the S&P 500 fell 1.2%, and the Nasdaq slid 1.7% as selling spread beyond big technology names. Apple and Amazon each fell about 3%. AppLovin dropped more than 4% even though it beat fourth-quarter expectations. The stock is down about one-third in the first six weeks of 2026.

Rotation Beyond Big Tech

Walmart rose 3% and Boeing gained 2% as money moved into more cyclical stocks. Cisco fell about 7% after reporting revenue of $15.35 billion and adjusted EPS of $1.04. Non-GAAP gross margin was 67.5%, below the 68.1% estimate. Cisco also raised full-year revenue guidance to $61.7 billion from $61.2 billion. That was still below the $62.1 billion target. McDonald’s edged lower after adjusted EPS of $3.12 on revenue of $7.01 billion. US comparable sales rose 6.8%. Existing home sales fell 8.4% in January to 3.91 million, below the 4.15 million estimate. The median price rose 0.9% to $396,800, marking the 31st straight year-over-year increase. Initial jobless claims were 227K, and continuing claims were 1.862 million. January nonfarm payrolls showed 130K jobs versus 55K expected. The Fed held rates at 3.50–3.75%. Markets are pricing about two rate cuts in 2026, and headline CPI is expected to be 2.5% year-on-year. Because the selloff is broad and led by tech, it may make sense to prepare for more downside in growth stocks. The rotation away from tech appears to be speeding up. One way to hedge, or to speculate on further weakness, is to buy put options on the Nasdaq-100 tracking ETF (QQQ). The drop in mega-caps like Apple and Amazon suggests the selling is meaningful and not limited to smaller companies. Sentiment around AI and software has turned sharply negative after years of optimism. After the AI-driven rally of 2023, investors are now focusing more on the path to profits and the risk of tighter margins. You could consider shorting certain software ETFs or buying puts on companies like Cisco, which has pointed to rising AI-related costs as a headwind.

Positioning For Continued Volatility

At the same time, money is moving into cyclical and value-focused areas. Opening long positions using call options on ETFs like the Industrial Select Sector SPDR Fund (XLI) or the Consumer Staples Select Sector SPDR Fund (XLP) could help capture this shift. This approach aims to benefit from relative strength in the parts of the market that investors prefer in a risk-off environment. With markets looking more unstable, volatility could rise. The CBOE Volatility Index (VIX), often called the market’s “fear gauge,” traded near 14 in late 2025. It could move back toward the 20–25 range seen during uncertain periods in 2023. Buying VIX call options is one way to position for a jump in market stress in the weeks ahead. The sharp drop in existing home sales is also a warning sign for the economy. It mirrors the weakness seen in 2023, when sales fell to the lowest level in nearly 30 years. This could support bearish positions in homebuilder stocks, such as buying puts on the SPDR S&P Homebuilders ETF (XHB). High prices combined with falling sales volume are a major challenge for the housing sector. With the CPI report approaching, investors are uneasy about inflation and the Fed’s next steps. The market’s repricing of rate cuts looks similar to the “higher for longer” period in late 2023, which pressured equities. Short-term options on the SPDR S&P 500 ETF (SPY) can be used to hedge against a hotter-than-expected inflation reading that could trigger another leg down. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now