Deutsche Bank analysts said fears about AI led to a fast reset in stock prices. In just 14 days, more than $1 trillion in global market value was wiped out. They said the volatility moved beyond technology and into areas like wealth management, real estate, and financials. They said last week marked a shift from tech-driven swings to a broader market sell-off. The week’s low came on Thursday, after a sharp drop in software stocks. They also noted double-digit declines across wealth management, real estate, and financial companies.

Market Volatility Broadens

Market breadth weakened. The equal-weighted S&P 500 fell -1.37% on Thursday, then finished the week up +0.29% after rising +1.04% on Friday. The S&P 500 fell -1.39% for the week, despite a +0.05% gain on Friday. The Nasdaq dropped -2.10% for the week and fell -0.22% on Friday. The Magnificent 7 declined -3.24% for the week and -1.11% on Friday. They said U.S. data also moved markets. They pointed to flat December retail sales, a dovish Q4 Employment Cost Index, and the Atlanta Fed lowering its Q4 growth outlook. They said these reports helped drive a rally in Treasuries and pushed yields lower across the curve. Because volatility jumped so quickly, we are positioning for continued uncertainty in the weeks ahead. The VIX spiked above 28 last week for the first time since the banking stress of 2025. It is still high at 24, which suggests options premiums may stay expensive. This setup favors strategies that hedge downside risk or benefit from high volatility, such as buying protective puts on broad indexes like the SPX. The AI-driven repricing has clearly moved beyond tech and is now hitting sectors that were seen as more stable. Last week, implied volatility on the Financial Select Sector SPDR Fund (XLF) doubled as wealth management firms saw steep sell-offs. As a result, traders may want to watch for weakness outside the usual tech names. One approach could be using put spreads on real estate (IYR) or financial ETFs to position for more disruption in those industries.

Positioning For The Next Catalyst

While the Magnificent 7 took most of the initial hit, the sell-off also creates two possible paths. The Nasdaq 100 is still more than 4% below its January highs as of this morning, and we are seeing demand for protective collars to hedge long-term tech holdings against further declines. On the other hand, for those who think the sell-off has gone too far, selling cash-secured puts on fundamentally strong but beaten-down software names could be a way to collect higher premiums. Next, the market’s direction will likely depend on upcoming economic data, especially after the softer readings from a couple of weeks ago. The key release is the January CPI inflation report due this Thursday, February 19, which could either ease concerns or make them worse. We expect stronger demand for short-dated options, especially straddles on the SPY, as traders prepare for a large move in either direction after the report. Create your live VT Markets account and start trading now.

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