Nasdaq Index: Bearish Forecast as AI Concerns, Bitcoin Slump, and Falling Yields Weigh on US Stocks

AI Trade Jitters Spark Broader Market Selloff

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.

Flight to Safety Pushes Treasury Yields to Multi-Month Lows

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 Breaks Down as Cryptos Follow Risk-Off Trend

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.

Tech Stocks Hit Hard as Market Risks Intensify

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.

Market Forecast: Bearish Bias Likely to Persist Across Asset Classes

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.

More Information in our Economic Calendar.