The DJIA gave up early gains and closed about 120 points lower, down roughly 0.2% near 50,010, after briefly moving back above 50,000. The S&P 500 fell 0.2%, and the Nasdaq Composite dropped 0.5%. Heavy selling in enterprise software stocks outweighed the market’s initial reaction to the January NFP report. The BLS said the US added 130K jobs in January versus a Dow Jones estimate of 55K, the strongest payroll growth since December 2024. Unemployment dipped to 4.3% from 4.4%. U6 fell to 8.0%. Average hourly earnings rose 0.4% month-on-month and 3.7% year-on-year. Participation edged up to 62.5%. The household survey showed a gain of 528K.

Labor Market Details

Health care added 82K jobs, social assistance added 42K, and construction added 33K. Federal government employment fell by 34K. Final benchmark revisions cut payrolls by 898K for April 2024 to March 2025. This reduced 2025 job growth from 584K to 181K and brought average monthly gains to below 40K. Powell previously cited about 60K per month. Kansas City Fed President Jeff Schmid repeated that he prefers policy to stay modestly restrictive while inflation remains persistent. Markets moved to expect the next cut no earlier than July. CME FedWatch priced about a 33% chance of 50 basis points of cuts by year-end, with the fed funds rate seen at 3.50% to 3.75% after three quarter-point cuts in H2 2025. Software shares fell again: Salesforce dropped nearly 4%, ServiceNow fell over 6%, Intuit fell more than 5%, and Oracle and Palantir fell over 2%. The iShares Expanded Tech-Software Sector ETF slid 3.5%. The sector has lost more than $1 trillion in value since late January. Meanwhile, AI infrastructure names rose. Vertiv jumped 17%, Caterpillar rose 4%, Eaton rose 4%, and GE Vernova added 1%. Other moves included T-Mobile down 5%, Robinhood down 10%, and Mattel down 30%.

Strategy Implications

The market is sending mixed signals. The strong January jobs report was offset by concerns about a more hawkish Federal Reserve. This type of uncertainty often leads to higher volatility. That can make options strategies that benefit from large price swings more attractive. We should be ready for choppy trading, and the CBOE Volatility Index (VIX) could move back toward 20, a level seen during uncertain periods in 2024. The sharp selloff in enterprise software looks like more than a one-day move. It reflects a broader shift tied to fears of AI disruption. This trend may continue. The current drop is being compared to the 2022 tech correction, when the sector fell more than 30%. We should consider put options on software ETFs or on individual names like ServiceNow to potentially benefit if weakness continues. At the same time, the rally in AI infrastructure and industrial companies like Vertiv and Caterpillar is supported by earnings and strong forward guidance. This “picks and shovels” approach to AI is where money is moving, and it has created a clearer bullish trend. Call spreads on these leaders can provide upside exposure while helping manage the high option premiums that often come with strong momentum. This split between software and infrastructure also creates a pairs trade opportunity. By going long a basket of AI infrastructure stocks and shorting a basket of enterprise software stocks, we can focus on this theme. This approach can reduce exposure to the overall market direction and may profit as long as the rotation continues. The stronger jobs data, especially 3.7% wage growth, gives the Fed more room to delay rate cuts beyond the summer. Inflation was difficult to control in 2023 and 2024, so the Fed may be cautious about easing too quickly. The move in rate-cut expectations from June to July looks reasonable, and further delays could continue to pressure growth-oriented stocks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now