S&P 500 treads water in short week as beaten-up software names slide

CNBC, AP, Investor’s Business Daily, and the Wall Street Journal contributed to this report.

Wall Street opened a holiday-shortened week in that awkward place between shrug and worry — the broad market basically flat while investors kept off the gas. The tech-heavy Nasdaq Composite and the blue-chip Dow Jones Industrial Average barely budged as traders rotated out of pricey software plays and into banks.

The software sector took another whack. ServiceNow slipped more than 1%, leaving it down about 31% for the year. Autodesk and Palo Alto Networks each fell roughly 2% — more pain for names already nursing double-digit losses. Big enterprise names like Salesforce and Oracle dropped 2%–3% and deepened YTD declines. The sector ETF iShares Expanded Tech-Software Sector ETF (IGV) was off more than 2%.

Money rotated into financials. Bank of America and JPMorgan climbed about 1% as yield dynamics and recession odds keep traders betting on banks over software for now.

Why the selloff in software? The short answer: fear that AI will rewrite business models. Investors worry that agent-style AI could eat away at revenue for firms that sell industry-specific tools. Leah Bennett, a strategist at Concurrent Investment Advisors, put it bluntly on TV: some companies simply won’t have moats anymore and will see their margins erode. Leah Bennett

That worry shows up in earnings season expectations. Banks running the numbers say the burden is now on companies to prove they’ll survive the AI shake-out. Scott Chronert, Citi’s U.S. equity strategist, warned markets are recalibrating multiples where disruption looks likely — and until companies prove durable cash flows, investors will be picky. Scott Chronert

Economic signals didn’t offer much help. A softer than expected consumer-price print last week nudged hopes of rate cuts, but markets are waiting on more data — the Fed minutes midweek and Friday’s PCE inflation read are the next live wires. That uncertainty plus AI jitters has traders trimming positions instead of piling in.

Market breadth tells the same story: indexes hover near record territory, yet leadership is narrow. A handful of large-cap winners keep headline numbers intact while a long tail of names gets hammered. That’s why you can have a flat market day and still feel like the floor’s falling out under many portfolios.

Short term, expect more selective moves. If inflation reads continue to cool and companies deliver solid early-quarter results, the beaten-down software cohort could see relief rallies. If not — if AI fears morph into concrete revenue threats — watch for more multiple compression and a prolonged period where quality and balance-sheet strength trump flashy growth stories.