AI Disruption Fears Trigger Software Selloff as Fed Outlook Clouds 2026

Remy: Welcome back to Market Movers: The Opening Bell. The AI narrative has taken a sharp turn for three years. Artificial intelligence was the unquestioned engine of market expansion, but we are seeing a wave of AI jitters ripple through the major equity averages, in particular the S&P 500, wiping value from software giants and financial titans alike. The catalyst while real world automation tools from firms like Altruist and Anthropic that threatened to disrupt traditional fee based business models. Well, joining me this morning to weigh in is Dave Mazza, CEO at Roundhill Investments. Dave, good morning. Thank you so much for joining us. Well, we are seeing wealth management and brokerage stocks slide on news of AI driven tax strategy tools and even real estate service stocks are falling on AI disruption fears. So do you think the market is finally pricing in this terminal value risk for what can be best described as human intermediate financial services?

Dave: Yeah.No, it certainly seems like every day. There's sort of a new industry that's or new group of stocks is sort of being targeted by the AI disruption. Um, but I think if we take a step back, this comes on the heels of an AI trade that was in some ways relatively easy to identify. Right? It was the picks and shovels and the hyperscalers. now that's evolving because we're beginning to see real world use cases disrupt what our either legacy software companies or like we saw just yesterday, commercial real estate for the potential for AI to disrupt that space. So this year is much more about sort of discerning the longer term winners versus where they're where there could be sort of near-term losers, um, coming out of the impact of AI.

Remy: Yeah. And, Dave, while I have you here, as you mentioned, Adobe, PayPal have been hit hard as Anthropic rolls out new legal automation. And we're seeing this across different industries as well. But are we witnessing a more permanent rerating of the software sector right now?

Dave: Look, I think it's interesting. So software stocks, uh, again, were sort of, uh, an easy trade. High growth, high margins. Um, for, for many years, um, what we're now seeing is investors, to your point, rerating the entire sector. I think some of it is a bit of an overreaction. But at the same time, there's a reality that these companies business models may not be as sort of, uh, robust as as many have thought. with that being said, if you're not actually able, if you're simply just kind of providing, uh, a single utility, a single tool without additional value add, I think that's why those are the stocks that are actually being being hammered the most. So, um, there's probably some opportunity for bargain hunting in software here if you're interested in sort of shorter term trades. Um, but I do think we're still in a time where we're going to see volatility in that space as investors really ascertain what's going to come from whether companies, enterprises are going to be willing to continue to commit to those software companies as opposed to maybe being able to build their own models with AI much quicker in some ways, maybe even smoother than onboarding a new software program.

Remy: Yeah, and that's definitely a space we'll keep our eyes on. But while I have you here, let's take a look at the macro, especially on the heels of that blowout January jobs report that doubled expectations on the headline nonfarm payrolls number. So the macro picture does get murkier, especially with the reaction we saw in the markets yesterday. And I do want to get to the Fed's 2026 path moving forward. So how much of the volatility is actually about sticky inflation rather than tech disruption. And what does that jobs report actually tell you?

Dave: Yeah. Well it's interesting I think at the headline point I think this is what you're getting at with this question., we continue to sort of focus on AI and sort of the, the AI trade, whether it's a bubble or not. Questions like that. But if you peel back the onion, um, actually, from an economic point of view, data is generally still good, even though that's kind of feels odd to say. Look at the jobs report that we saw yesterday. Now. Um, the impact that that has is it does make, I think, the Fed's job a lot harder. We obviously know that we have a new chairman coming in, um, to, to lead the Fed - Kevin Warsh. Uh, if we look at the bond markets initial reaction, not necessarily favorable. Um, however, um, he has to sort of begin to sort of get the committee behind him from that point of view. So that's one of the reasons why I think the market is not necessarily pricing in a massive amount of cuts that someone would expect with a Trump appointee, um, to be coming in, leading the fed, because it's still a rock and a hard place for FOMC voting members where we see inflation, uh, coming way down from the highs but still relatively sticky.

Member measures like true, which is more of a real time indicator have come way down. But we're not necessarily seeing that in official data like CPI and PCE, which of course the Fed is looking at coupled with a jobs market that's not gangbusters but also not falling off a cliff yet? Um, so it's it to me, it's it's, uh, that's another reason why entering 2026, when we turn the calendar, we've now seen, uh, really greater volatility, particularly across different sectors and industries.

Remy: Yeah. And speaking of inflation, we'll get a better read tomorrow morning when that delayed report comes out. But I do want to get to Roundhill's 2026 survey, which did suggest that the Mag 7 hype is cooling. So as traders do scale back rate cut bets, which asset classes do you think are positioned to weather the potential disruption of traditional tech leaders?

Dave: Yeah it's interesting. So to your point, we did a survey among our investor base at the beginning of January. And, uh, the shortest takeaway is that generally, uh, the market was very, very bullish. Uh, but one area in particular that had this divergence was, uh, bitcoin and crypto. So many people believed that we were going to see, uh, much higher highs and a recovery from sort of the peaks that we saw at the end of October. their biggest worry and concern was crypto above an AI bubble, above geopolitics and things of that nature. So I think that tells you again, this is an area that people are maybe hoping to recover, but not necessarily feeling that good about its path toward recovery. And so we see sort of a big dichotomy heading into 2026. The other thing we need to recognize is this is a midterm election year that's going to start kind of getting a greater prominence, where investors are starting to think about, well, what does it really mean if we don't have three houses controlled by Republicans versus not? And so I think that's also weighing on market volatility for the time being.

Remy: Well Dave, thank you so much for joining us this morning. We are fast approaching the opening bell here at the New York Stock Exchange. So we will have to leave it there. As always great talking to you and thank you so much for sharing all of your insights.

Dave: Thank you.