dailynewsnblog
Deutsche Bank: rotation out of software has echoes of dot-com crash
Despite today’s drop in software and data companies, the UK’s FTSE 100 share index is down just 0.07% this session as investors rotate into other sectors.
Worryingly, that pattern “echoes what we saw in 2000 as the dot-com bubble started to burst”, analysts at Deutsche Bank warn.
They reminded clients this morning:
Equities started to fall from the March 2000 as tech stocks saw significant declines. However, consumer staples, utilities and healthcare rallied significantly over the months ahead, and in September the S&P 500 actually came within a percentage point of its record high from six months earlier.
So it shows that a market can absorb a prolonged rotation without obvious index-level stress for some time. But the longer and deeper the sell-off in a dominant sector becomes, the harder it is for the broader index to withstand the drag, and the continued losses for tech in 2000 ultimately meant the S&P 500 ended that year over -10% lower.
Deutsche Bank also report that “risk assets came under mounting pressure over the last 24 hours”, as concerns around AI and a weak batch of US data led to growing questions about the near-term outlook.
Key events
Here’s an example of the severity of the software sell-off:
Selloff in software not just the large caps … S&P 1500 Software Index has gotten chopped by -29.9% from its high.
Going back to 2010, the only selloff that was worse was the bear market in 2022. pic.twitter.com/kynJxRQdZD
— Kevin Gordon (@KevRGordon) February 6, 2026
Bank of England chief economist Huw Pill has warned there is a risk that the central bank draws too much comfort from an expected fall in inflation in April, a day after the Bank left interest rates on hold.
Pill, one of five policymakers who voted to maintain Bank rate at 3.75%, told businesses:
“There is … a risk that we draw too much comfort from the ditch in short term inflation dynamics that (was) created by the downside fiscal measures announced last November, and we lose a little bit of a track of where the inflation that is going to be the lasting dynamic in price developments that will still be there once all these one off effects fade out.”
We learned yesterday that four of the nine policymakers on the Bank’s Monetary Policy Committee voted to cut interest rates, but were narrowly outvoted, and that the Bank expects inflation to fall near to its 2% target in the second quarter of this year.
Tata Steel’s UK operations have continued to make a loss.
The metals company, which owns the Port Talbot steelworks in Wales, reported a UK loss of 741 crore (£60m) for the last quarter of 2025, on an EBITDA basis, and a 1,977 crore loss for the last nine months of the year.
Revenues for March-December 2025 fell to 17,558 crore, down from 18.,989 a year earlier.
The wider company beat forecasts, though, with consolidated net profit of 26.89 billion rupees in Q4 2025, up from 3.27 billion rupees a year earlier.
Emily Sawicz, director and industrials senior analyst at RSM UK, says:
“Tata Steel’s Q3 results show a solid group performance driven by India, but continued pressure across its European operations. While Europe has slipped into an EBITDA loss for the quarter, the more important shift is what this signals for the rest of this year.
“In the EU, protectionist measures are expected to feed through from next quarter, with carbon border mechanisms (CBAM) potentially triggering a restocking. Combined with an increase in infrastructure and defence spending this is likely to support steel prices and improve the outlook for the Netherlands business. The UK, however, is effectively locked out of these benefits. Flat demand, import quotas that exceed domestic consumption and falling prices mean the UK market remains under the most pressure of any of Tata Steel’s divisions.
“Looking further ahead, the outlook improves for 2027. The introduction of a UK carbon border mechanism, alongside Tata Steel’s transition to lower-carbon electric arc furnace production at Port Talbot, should materially strengthen competitiveness. The near-term challenge is managing the gap until those structural supports take effect, but the longer-term trajectory for the UK business is far more constructive.
City experts are predicting that the Bank of England will have cut interests rates to 3% by the first quarter of next year, down from 3.75% today.
The BoE’s latest Market Participants Survey results, just released, show that rates are expected to bottom out at 3% in Q1 2027, and remain there until least the third quarter of next year.
There are hopes that Wall Street may end the week with a small rally.
S&P 500 futures are up 0.32%, with the tech-focused Nasdaq 100 futures up 0.4%, and the Dow Jones industrial average called up 0.15%.
Markets are trying to stabilise into the weekend, reports Daniela Hathorn, senior market analyst at Capital.com.
Sentiment has recovered into the end of the week with the major US indices trading with a positive bias after the sell offs seen earlier this week. The tech sector has been a major underperformer in the past few days with concerns about overinvestment in the AI sector resurfacing after the current earnings season has revealed increased expenditures in the sector.
Furthermore, the heavy selloffs in the metals market had left many investors having to liquidate positions elsewhere in search for more liquidity in their portfolios, leading to a bearish correction in equities and beyond. However, the momentum seems to have stabilised on Friday, with Gold and Silver both trading in the green, alongside global equities.
But caution remains. The markets are likely to remain choppy in the coming days as they rebalance after the heavy moves and fresh data is released next week, with focus on the latest employment data in the US after it was delayed following a 4-day partial government shutdown.
The EU’s concerns about TikTok’s “addictive design” appear to target the services’s core appeal.
TikTok though, is rejecting today’s preliminary findings.
A TikTok spokesperson says:
“The Commission’s preliminary findings present a categorically false and entirely meritless depiction of our platform, and we will take whatever steps are necessary to challenge these findings through every means available to us.”
TikTok hit with charges of breaching EU online content rules
Over in Brussels, social media app TikTok has been charged with breaching EU online content rules through its addictive features.
TikTok could be forced into changes to make the app less addictive to users after EU tech regulators found the platform has breached the bloc’s digital safety rules.
They criticised TikTok for generating new content to encourage users to keep scrolling, saying this shifts users’ brain into an autopilot mode, through features such as infinite scroll, autoplay, push notifications, and its recommender system.
It says:
The Commission’s investigation preliminarily indicates that TikTok did not adequately assess how these addictive features could harm the physical and mental wellbeing of its users, including minors and vulnerable adults.
Last month my colleague Hilary Osborne – presciently – examined whether readers should be worried about an AI bubble, and how they could protect themselves.
It’s not too late! See here for more:
Stellantis’s swerve away from electric cars (see earlier post) is particularly surprising when you look at the Norwegian auto market.
Just seven new petrol cars were sold in Norway last month, data shows, as drivers snapped up more than 2,000 battery electric vehicles (BEVs) instead.
The iShares Expanded Tech-Software Sector ETF, which tracks the sector, has tumbled by around 25% so far this year, highlighting the scale of the selloff in the last few weeks.
Bloomberg reported on Wednesday that almost $1tn had been wiped off the sector over the previous seven days.
Most investors ‘likely nursing losses’ as popular trades unwind
Data yesterday showing a surge in US company layoffs in January (see yesterday’s blog) is also being blamed for the slide in riskier assets.
Neil Wilson, investor strategist at Saxo UK, explains:
Most investors are likely nursing losses by Friday morning as we see a sharp unwind in some of the most popular trades. Hard to believe the equal weighted S&P 500 posted an all-time high on Wednesday as tech and momentum stocks faded and investors rotated into other corners of the market…yesterday the rest of the market caught up in a broad retreat from risk assets.
Crypto is looking particularly weak, gold and silver are fading again…it’s looking increasingly challenging for bulls to be constructive right now so they are circling the wagons. The US Challenger job cuts rose to more than 108,000, a sudden spike that spooked the market.
“It’s been a week from hell for tech stocks as AI spending plans caused upset across global markets and pushed investors to unplug hyperscalers from their portfolios,” says Russ Mould, investment director at AJ Bell.
Mould adds:
“Amazon has followed its peers by turning up the dial to max on AI spending, leaving investors with their jaws to the floor.
The hyperscalers are so confident that AI will change the world, they’re spending big bucks to have the foundations to serve what they predict will be sky-high demand. Investors are becoming increasingly dubious about the level of spending, fearing these companies are wasting their money.
Deutsche Bank: rotation out of software has echoes of dot-com crash
Despite today’s drop in software and data companies, the UK’s FTSE 100 share index is down just 0.07% this session as investors rotate into other sectors.
Worryingly, that pattern “echoes what we saw in 2000 as the dot-com bubble started to burst”, analysts at Deutsche Bank warn.
They reminded clients this morning:
Equities started to fall from the March 2000 as tech stocks saw significant declines. However, consumer staples, utilities and healthcare rallied significantly over the months ahead, and in September the S&P 500 actually came within a percentage point of its record high from six months earlier.
So it shows that a market can absorb a prolonged rotation without obvious index-level stress for some time. But the longer and deeper the sell-off in a dominant sector becomes, the harder it is for the broader index to withstand the drag, and the continued losses for tech in 2000 ultimately meant the S&P 500 ended that year over -10% lower.
Deutsche Bank also report that “risk assets came under mounting pressure over the last 24 hours”, as concerns around AI and a weak batch of US data led to growing questions about the near-term outlook.
