Markets Close Mixed as AI Caution Caps Gains; S&P 500 Hits New High

Markets ended Thursday with a mixed tone as the S&P 500 and Dow closed at record highs, while tech stocks lagged following a disappointing report from Oracle. Despite early risk-off sentiment, dip buyers stepped in, helping the broader market rebound. The Dow surged on strength in blue-chip names, while the Nasdaq struggled under renewed skepticism toward AI spending. Bond yields held steady as jobless claims surprised to the upside, and the dollar weakened following the Fed’s dovish tilt.

Key Headlines & Market Movers:

• Oracle Miss Revives AI Spending Concerns: Oracle shares tumbled nearly 11% after it reported disappointing earnings and revealed aggressive AI infrastructure spending funded largely by debt. The report reignited investor concerns about whether AI capital expenditures will translate into profits fast enough. This weighed heavily on broader AI-related stocks like Nvidia and Micron, which also declined. The response marked a shift in sentiment from earlier in 2025 when higher AI capex was seen as bullish.

Broader Market Rotation Continues: While tech struggled, the Dow and Russell 2000 both hit new records, reflecting a continued rotation into value and small-cap names. This suggests growing investor appetite for areas outside mega-cap tech, particularly as economic growth forecasts remain solid and Fed policy becomes more accommodative. Strong gains in companies like Home Depot, Visa, and UnitedHealth boosted the Dow.

• Fed Policy Still Supportive Despite Divergence: Markets are still digesting the Fed’s quarter-point rate cut and Powell’s relatively optimistic tone. Despite three dissenting votes, traders remain priced for two more cuts in 2026, betting on sustained disinflation and improved growth. The Fed’s updated projections reflect this optimism, with stronger 2026 growth and lower inflation expectations. Bond yields briefly fell on soft jobless claims before stabilizing.

Notable Corporate Headlines: Disney announced a $1B investment in OpenAI and licensing of its characters for use on AI video platform Sora, pushing shares up 2.4%. Coca-Cola declined 1.6% after announcing CEO James Quincey will step down in March. Eli Lilly gained in premarket trading after strong results from its next-gen obesity drug, which showed patients lost nearly 25% of body weight.

S&P 500 Sector Performance

Looking Ahead

Investors will closely watch earnings from Broadcom and Costco, due after the close, for further insight into the strength of AI spending and consumer demand. Market breadth and sector rotation will remain key themes as the rally tests its durability beyond the AI leaders. With the Fed now in a supportive stance and macro data showing moderate softness, attention will increasingly shift to earnings execution and valuation discipline across sectors.

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