Wall St Week Ahead Tech stock shakeout clouds market ahead of economic data deluge

• The tech sector has dropped over 12% since late October, with software particularly hard hit amid disappointing earnings from Microsoft and fears that AI will create winners and losers rather than lifting all companies equally
• January payrolls expected to show 70,000 jobs added while jobless claims surged, with both employment and inflation data delayed by the recent government shutdown
• Markets expect the Federal Reserve to hold rates steady until June, pricing in roughly two quarter-point cuts by December despite 'somewhat elevated' inflation

Market Summary: Tech Selloff and Economic Data Week Ahead

Key Developments

The technology sector is experiencing significant turbulence, with the S&P 500 software and services index plunging 17% in just over a week. Concerns about AI's disruptive impact on business models have triggered a broad selloff, with tech declining over 12% since its late October peak. The weakness has erased the S&P 500's gains for 2026, as the tech sector comprises approximately one-third of the benchmark index's weight.

Market Rotation

Despite tech sector struggles, a notable rotation is underway into previously underperforming sectors. Energy, consumer staples, and industrials have outperformed year-to-date, with three sectors posting double-digit gains during tech's decline. However, the S&P 500 has fallen over 1% overall, highlighting tech's significant drag on broader index performance.

Corporate Impact

Software companies face particular pressure following disappointing earnings, including from Microsoft. Upcoming earnings reports from AppLovin, Datadog, Coca-Cola, Cisco Systems, and McDonald's will provide further insight as Q4 earnings season concludes.

Critical Economic Data

A delayed data deluge looms following the recent government shutdown:

• Wednesday: January nonfarm payrolls expected to show 70,000 jobs added, though jobless claims surged in January
• Friday: January Consumer Price Index report

Federal Reserve Outlook

Markets anticipate the Fed will maintain rates until its June meeting, with Fed fund futures pricing in approximately two quarter-point cuts by December. President Trump's Fed chair nominee Kevin Warsh may be leading the central bank by then. The Fed views inflation as "somewhat elevated" while employment risks have diminished.

Investors are assessing whether the tech correction represents a healthy rotation or signals broader market weakness ahead.