US stocks faced pressure on Thursday. The S&P 500 declined by 0.7%, the Nasdaq dropped 1.6%, and the Dow fell 0.2%. Cryptocurrencies also took a hit, falling over 4% and hitting near two-month lows. Microsoft’s shares fell 11%, their lowest since early 2020, due to slower cloud growth. The tech sector struggled, raising concerns over increasing costs in artificial intelligence (AI) that could alter existing business models. ServiceNow’s stock fell even though it exceeded earnings expectations, and both Oracle and Salesforce experienced declines. The IGV ETF, focused on software, entered a bear market, down over 20% from its peak as sentiment shifted away from AI optimism. While AI continues to drive growth, the quality of earnings and diversification matters more now as valuations face pressures.

Meta And Caterpillar Shine

On a positive note, Meta’s shares rose sharply after reporting strong earnings, with a 24% revenue growth from advertising. Their optimistic sales forecast showed investor confidence in Meta’s AI investments. Caterpillar also posted solid quarterly results. Additionally, copper prices soared to an all-time high of $6.45 a pound, marking an 8% increase, driven by expectations of ongoing global economic activity. The US government faces budget issues, raising fears of another extended shutdown. The field of AI aims to replicate human thinking, with companies like Nvidia and Palantir making significant contributions by developing AI platforms and analyzing data, respectively. Stock rallies following AI updates, such as ChatGPT, have sparked concerns about a potential tech bubble due to high valuations. Given the pressure on large tech companies, using puts on the Nasdaq (QQQ) as a hedge on long positions seems wise in the upcoming weeks. Microsoft’s guidance indicated its cloud growth is slowing to the low 20% range, a notable drop from the 30% rate we saw in early 2025. This suggests the market will likely penalize tech firms that do not meet high growth expectations. The software sector’s drop into a bear market marks a significant departure from last year’s AI-fueled optimism. Valuations based solely on AI hype are proving unsustainable without accompanying profit growth. Short-term bearish strategies, like selling call spreads on the IGV software ETF, could be effective as more investors shift away from this recent market trend.

Market Volatility And Copper Surge

The market is not moving together, as demonstrated by Meta’s strong earnings and Caterpillar’s solid performance. This split in performance makes pairs trades appealing, such as buying calls on Meta while purchasing puts on a broader software ETF to highlight company-specific strength. This divergence emphasizes the importance of focusing on earnings quality rather than just jumping on the AI trend. The looming government shutdown adds uncertainty, often leading to increased market volatility. Purchasing straddles on the S&P 500 (SPY) could be a way to profit from the expected price swings as budget negotiations stall. During the 35-day shutdown from 2018 to 2019, we saw how the lack of official data, like inflation and job reports, disrupted trading and caused erratic market movements. In contrast to the weakness in stocks, copper’s rise to an all-time high indicates economic strength. This uptick is fueled by strong demand related to the green energy transition and AI data center construction. Recent analyst reports predict a possible supply deficit of over 4 million tonnes by 2030. Buying call options on major copper producers or the COPX ETF could capitalize on further growth as demand continues to outstrip supply. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now