US January nonfarm payrolls came in at 130K versus a 70K consensus, nearly double expectations. After an early gain, the Nasdaq Composite was down 0.25% by lunchtime, while the Dow Jones and S&P 500 were mostly flat.
Payroll growth improved from December’s revised 48K, and the unemployment rate fell 0.1 percentage point to 4.3%. Markets pushed expectations for the next US rate cut from June to July. A Federal Reserve official also suggested keeping policy restrictive as inflation moves closer to 3%.
Rates Cut Outlook Shifts
Several non-AI technology stocks and related names fell after earnings updates. Stocks mentioned included Robinhood (HOOD), Shopify (SHOP), Lyft (LYFT), Astera Labs (ALAB), and Unity Software (U).
Astera Labs fell 20%, as investors focused on future gross margins and its partnership with Amazon (AMZN). Unity dropped 30% after issuing weak revenue guidance, while Robinhood slid 13% after missing quarterly revenue.
Centrus Energy (LEU) fell 19% after missing quarterly expectations. Shopify dropped 13% after forecasting Q1 free cash flow margins in the “low to mid-teens,” versus the 17% margin Wall Street expected.
Because the January jobs report was strong, expectations for a Federal Reserve rate cut shifted from June to July. The market reacted right away: the 2-year Treasury yield jumped 15 basis points to 4.55% as traders priced in higher rates for longer. This suggests traders may want strategies that benefit from the delay, such as buying puts on interest rate-sensitive bond ETFs.
Tech Sector Rotation Deepens
The technology sector is showing a clear and “violent” split. Non-AI companies are being hit hard, while AI-focused firms are holding up better. This rotation looks similar to the valuation reset seen in 2022 and may create opportunities for pairs trades. One approach is to buy calls on a basket of AI leaders while also buying puts on ETFs that track traditional software, such as the iShares Expanded Tech-Software Sector ETF (IGV).
The sharp one-day drops—Unity Software (U) down 30% and Astera Labs (ALAB) down 20%—show the market’s stronger focus on profitability and the threat from AI-driven competition. For traders, buying put options on non-AI tech companies that have not yet reported earnings may be a useful strategy. These moves suggest that implied volatility, even when elevated, may still not fully reflect the downside risk for companies that deliver weak guidance.
Even though broad indexes like the S&P 500 look calm, there is significant volatility beneath the surface. The CBOE Volatility Index (VIX) is around 15, which may underprice the risk from this sector rotation. In this environment, it may be more effective to buy protection in specific vulnerable sectors rather than in broad market indexes.
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