After a sharp decline, U.S. stocks rebounded strongly, making investors even more nervous.

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U.S. tech stocks continue to rebound as investors weigh AI concerns against buying opportunities.

On Monday, U.S. stocks extended Friday's rebound, with the S&P 500 index nearing its all-time high again. The Nasdaq 100 closed up 0.8%, once again standing above the key 100-day moving average.

(Monday intraday performance of U.S. benchmark stock indices)

Last Friday, the Dow soared more than 1200 points, breaking above 50,000 for the first time, and the S&P 500 recouped its weekly losses. Investors appear to have viewed last week’s sell-off as an "overreaction" and a buying opportunity, with funds rushing in during periods of market volatility.

However, investors’ fundamental concerns remain unresolved. Doubts persist as to whether AI investments can deliver expected profits. During Friday's rally, Amazon still fell by 5.6%, with its market value evaporating by about $133 billion. Alphabet’s share price also dropped 2.5%.

This rapid rise and fall has made investors increasingly vigilant about where the next risk point might emerge. A delayed release of January’s jobs report and the latest inflation data this week could further influence interest rate policy trends and market sentiment.

Tech sector leads rebound, but AI spending concerns linger

On Monday, the tech sector performed particularly strongly, with previously "slaughtered" software and chip sectors both rallying sharply. Oracle soared nearly 10%.

(SaaS software stocks continue to rebound from lows)

The weakening USD provided additional support for risk assets and gold, and market sentiment was optimistic ahead of key economic reports. Angelo Kourkafas, Senior Global Investment Strategist at Edward Jones, said:

The bull market remains intact. We view any corrections as real opportunities to get back in.

But even as the stock market rebounded, tensions surrounding huge AI investments still enveloped the market. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, noted:

AI seems fairly smart at programming. Companies will not suddenly abandon the software embedded in all their systems overnight, but as a long-term challenge, AI looks to pose a reasonable threat to software.

Last week's plunge was triggered by concerns that AI-driven disruption may be broader than expected, and fears over whether tech companies’ hundreds of billions in AI investment can deliver the anticipated outsized profits. These concerns persist.

According to Jefferies analysts, hedge funds have long been reducing their exposure to software stocks. At the peak, selling was "extreme" and done "with complete disregard to price."

This round of selling and its ripple effects have prompted investors to reassess AI's dominance in the stock market and economy. Investors have long worried that the stunning rise of AI stocks has made the market overly dependent on a few tech giants, while massive AI spending by the world's biggest companies may mask broader economic weakness.

Poor economic data increases uncertainty

Recent data have provided little comfort.

According to the Labor Department’s monthly report, U.S. job openings last year dropped by nearly 1 million. HR company ADP estimated that January's private sector added only 22,000 jobs, less than half of market expectations.

The January nonfarm payroll report has been delayed to this Wednesday due to a brief government shutdown, making it harder for investors to judge the economy. Kelly commented:

The economic data is quite weak. Our current economic situation is only slightly below average, yet it supports a strongly performing stock market. I think that’s part of the problem.

When investors fled tech stocks, there were signs funds were rotating into other sectors. Consumer staples was the best-performing sector in the S&P 500 last week. Investors typically see it as defensive, since people still buy necessities even during economic slowdowns.

Cboe Global Markets data show the “skew” index for options on the iShares Russell 2000 ETF tracking small-cap companies hit its highest level since last November earlier this week. Higher skew usually indicates that prices for put options used to hedge declines are higher relative to call options.

Clark Bellin, Chief Investment Officer at Bellwether Wealth in Nebraska, said his firm plans to cut tech stock exposure and use those funds to increase holdings in industrial and materials companies. Bellin commented:

It makes you worry what other areas are almost purely driven by speculation.

While some investors expect strong corporate earnings to help drive the stock market higher—FactSet data show S&P 500 constituent companies’ profits are expected to grow 14% in 2026—many still expect volatility to continue into early 2026. Bellin said:

I don’t want to paint this as doomsday, but I think volatility will last for a while.

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ special investment goals, financial condition, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular situation. Investing accordingly is at one’s own risk. ```