The Dow Jones Industrial Average climbed about 600 points, or 0.6%, reaching 49,600, boosted by gains in pharmaceutical stocks. In contrast, the S&P 500 fell by 0.5% and the Nasdaq Composite dropped 1.4%, particularly affected by lower semiconductor and software stock prices. Investors are shifting from technology stocks to those more sensitive to the economy due to worries about disruptions from AI. Eli Lilly and Company jumped over 7% after reporting fourth-quarter earnings of $7.54 per share, exceeding analyst estimates. The company generated $19.29 billion in revenue, with its weight-loss drug Zepbound bringing in $4.2 billion in the U.S. They forecasted revenue between $80 to $83 billion for 2026. This stands in contrast to Novo Nordisk A/S, which expects a sales and profit decline of up to 13% this year.

Advanced Micro Devices Outlook

Advanced Micro Devices Inc. experienced a 14% drop after its first-quarter forecast fell short during a period of increased AI spending. AMD estimated revenue of $9.8 billion, despite strong fourth-quarter earnings. This forecast hurt semiconductor stocks like Broadcom Inc. and Micron Technology Inc. The ADP report showed that private-sector employment grew by only 22,000 jobs in January, falling short of expectations. The nonfarm payrolls report was deferred due to a partial government shutdown. The ISM Services PMI held steady at 53.8, indicating the services sector is still growing despite inflation concerns. Software stocks continued their downward trend due to fears about AI’s impact on traditional business models. Companies like Salesforce Inc., Oracle Corporation, and CrowdStrike Holdings Inc. saw further losses. The iShares Expanded Tech-Software Sector ETF has dropped over 14% recently. Gold rose to about $5,050 per ounce as investors sought safety amid uncertainty in the technology sector.

Positioning For Divergence

Given the market’s clear sector rotation, we should focus on divergence. This means favoring long positions in pharmaceuticals and other economically sensitive areas while considering short positions in technology, especially software and semiconductors. The performance gap yesterday between the Dow and Nasdaq shows that this trend is gaining strength. Eli Lilly’s impressive earnings make it a strong candidate for bullish options strategies like buying call spreads to manage costs. With LLY securing a 60.5% market share in the U.S. obesity and diabetes drug market—expected to surpass $100 billion annually by 2030—its momentum seems well-founded. This strength sharply contrasts with competitors and offers a solid long opportunity in healthcare. On the flip side, the sharp drop in AMD, despite its revenue beat, suggests that the AI chip sector was priced too high. After the semiconductor index gained over 80% in 2025, this pullback might continue. We can consider buying puts or bear put spreads on broader semiconductor ETFs to hedge against or profit from ongoing weakness. The decline in software stocks indicates deep investor concern about AI disruption, with many feeling defeated. Recent outflows from the iShares software ETF have reached record levels, reflecting this trend. We should think about maintaining or starting bearish positions until we see a solid technical bottom. Mixed economic data, with a weak ADP jobs report but strong ISM Services PMI, creates uncertainty. This tension will culminate in the delayed Nonfarm Payrolls report, which we should monitor closely. The past disconnect between ADP and NFP, particularly in early 2025, suggests that the market could react violently. It may be wise to use straddles on major indices in anticipation of this volatility. Gold’s rise above $5,050 an ounce underscores a defensive approach as investors move away from the turbulent technology sector. This trend benefits from record central bank buying in late 2025 and ongoing inflation concerns reflected in the ISM report. Using derivatives on gold or gold miners provides a direct hedge against further market fluctuations and a potential safe-haven strategy. Create your live VT Markets account and start trading now.

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