U.S. equities ended February on a volatile note as concerns over private credit exposure and a sharp correction in AI-driven stocks weighed heavily on investor sentiment. The S&P 500 closed down 2.8% for the month, its worst performance since September 2022.
- S&P 500 declined 2.8% in February, its worst monthly performance since September 2022
- Nasdaq Composite dropped 4.7% in February, led by AI stock correction
- Private credit delinquency rates rose to 4.9% in February, up from 3.2% in January
- AI-related ETFs saw $210 billion in outflows over two weeks in February
- 10-year U.S. Treasury yield climbed to 4.84% by end of February
- CBOE VIX spiked to 28.3, the highest since November 2023
The final trading day of February saw U.S. stock indices plunge amid mounting fears over leveraged private credit exposure and overheated valuations in artificial intelligence-related equities. The S&P 500 dropped 3.1% on Friday, bringing its monthly decline to 2.8%, while the Nasdaq Composite shed 4.7%, marking its sharpest monthly drop since late 2022. Key tech names bore the brunt, with Nvidia falling 12.6% over the week and Microsoft losing 7.3% as investors reassessed the sustainability of AI-driven growth narratives. The sell-off was fueled by a combination of macro and sector-specific triggers. Analysts highlighted rising defaults in the $1.3 trillion private credit market, with delinquency rates climbing to 4.9%—up from 3.2% in January—raising concerns about hidden leverage across corporate balance sheets. Meanwhile, the so-called 'AI scare trade' intensified as momentum-focused funds reversed course, leading to a $210 billion unwind in AI-linked ETFs and stocks in just two weeks. The impact was felt across sectors and geographies. Industrials and consumer discretionary stocks, historically sensitive to credit conditions, underperformed by more than 5% on average, while U.S. Treasury yields spiked, with the 10-year yield rising to 4.84% from 4.41% at the month’s start. Market volatility, as measured by the CBOE VIX, jumped to 28.3, its highest level since November 2023. Investors are now recalibrating risk exposure, with money shifting from high-growth tech into defensive sectors and short-duration bonds. The rotation has already triggered a 17% drop in the ARK Innovation ETF and a 9% decline in the Global X Artificial Intelligence ETF during the month.