Financial markets turned risk-averse on Monday as doubts over the artificial intelligence (AI) trade, a rush into Treasury bonds, and a sharp drop in cryptocurrencies combined to sour sentiment. The trigger came from a TD Cowen report suggesting Microsoft is scaling back data center spending, raising fears that AI demand may be waning.
This bearish signal, coupled with broader economic uncertainties, ignited a tech-led selloff that pulled the S&P 500 and Nasdaq Composite into the red.
Market veterans like Warren Buffett and Steve Cohen added to the caution, with Buffett’s Berkshire Hathaway holding a record $334 billion in cash and Cohen warning about potential economic fallout from Trump administration policies.
As equity markets faltered, bond traders sought refuge in U.S. Treasuries, driving yields to their lowest levels since mid-December. The 10-year Treasury yield dropped 5.5 basis points to 4.355%, while the 2-year yield slid to 4.137%.
This bond rally signals rising concerns over a slowing U.S. economy, exacerbated by federal job cuts and tariff risks. Sticky inflation remains a critical issue, limiting the Federal Reserve’s room to maneuver on interest rates. The bond market’s move reflects a broader defensive shift, with traders increasingly hedging against potential economic and market volatility.
Bitcoin joined the downturn, falling 4.5% to $89,791—its lowest since November. Ethereum also tumbled, losing over 8% to trade at $2,407. Bitcoin has now shed 4.5% year-to-date, erasing gains made after President Trump’s pro-crypto rhetoric earlier in the year.
Recent setbacks, including a $1.4 billion hack at crypto exchange Bybit and a memecoin scandal involving Argentina’s President Javier Milei, have damaged sentiment. The broader move away from risk assets underscores how cryptocurrencies are struggling to maintain their appeal in a cautious market environment.
The tech sector led Monday’s declines, with Palantir plunging over 10% on extended selling pressure. Microsoft lost 1% as concerns over its data center spending plans circulated, while Nvidia dropped 3% ahead of its earnings report on Wednesday.
The Nasdaq Composite has now turned negative for 2025, with analysts noting that the AI-driven tech rally may be losing steam. Jefferies highlighted that Microsoft’s potential cutbacks in AI infrastructure spending could be an early indicator of broader market challenges for AI-linked stocks.
Nvidia’s earnings will be a crucial test for the AI narrative, with traders watching closely to see if management provides a catalyst for renewed optimism. However, caution remains high as supply concerns and competition from China’s DeepSeek weigh on sentiment.
The market’s immediate outlook remains bearish, with risk aversion spreading from equities to bonds and cryptocurrencies. Falling Treasury yields reflect a defensive stance, while Bitcoin’s slump highlights diminishing risk appetite.
Traders should consider defensive strategies, such as holding cash, selling into market rallies, and reducing exposure to high-volatility assets. The tech sector, particularly AI-related stocks, could face continued pressure as sentiment shifts. A prudent approach is recommended, with an emphasis on protecting capital as markets navigate growing uncertainties.
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Mr.Hyerczyk is a technical analyst, market researcher, educator and trader. Jim is an expert in the area of patterns, price and time analysis, Forex and stocks.