Monday Was One of the Year's Worst Days for Stocks. Here's What Happened.
Markets sold off sharply on Monday, February 23rd, closing one of the worst sessions of the year. The Dow Jones dropped 822 points (−1.66%) to close at 48,804. The S&P 500 fell 1.04% to 6,837 — back in the red for 2026 — and the Nasdaq slid 1.13% to 22,627. Two separate shocks reverberated through the same session:
Shock #1: Tariff Escalation and Uncertainty
The first was increased uncertainty around tariff policy moving forward. On Friday, the Supreme Court ruled 6-3 that President Trump had exceeded his authority in imposing sweeping tariffs under the International Emergency Economic Powers Act (IEEPA). Markets initially rallied on the ruling, with hopes for tariff refunds and lowers costs.
But, Trump responded by announcing a new 15% global tariff under a different legal authority, Section 122 of the Trade Act of 1974. The move reignited trade war fears and triggered immediate pushback from the European Union, which warned the tariffs could jeopardize transatlantic trade deals. Several trading partners paused implementation of agreements they had reached with the US under the previous tariff program.
Congress is unlikely to approve the Section 122 tariffs beyond their legal 150-day window, which means markets now face ongoing uncertainty about what trade policy will look like later this year.
Shock #2: AI Displacement Threatens Another Industry
Mid-session, Anthropic published a blog post announcing that its Claude Code tool can automate COBOL modernization. The streamlines the complex, expensive process of updating decades-old banking, government, and airline software that IBM has made a major consulting business around. IBM shares fell 13.15%, their worst single-day drop since the dot-com crash in 2000.
The IBM sell-off triggered a wave of AI displacement fears across the broader software sector. Microsoft fell 3%, CrowdStrike dropped nearly 10%, and American Express sank 7.2% as investors priced in the risk that AI tools could automate work previously done by expensive human consultants and analysts. Salesforce, ServiceNow, and other enterprise software names were also under pressure.
Where Did Investors Go Instead?
Defensive names held up. Walmart gained 2.3% as investors rotated into consumer staples and companies that sell things people need regardless of what the economy is doing. Gold moved above $5,200, as investors sought safe havens from both trade war uncertainty and broader market anxiety. Bitcoin, which tends to move with risk assets, fell to around $64,000.
The one big exception in tech was Nvidia, which was up slightly, just under a percent. Investors are holding ahead of the company's earnings report on Wednesday. It will be one of the most anticipated earnings reports of the quarter.
The Bigger Picture: Mag 7 Is Struggling
Monday's sell-off is part of a broader pattern. The "Magnificent Seven" — Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, and Tesla — drove most of the S&P 500's gains over the past few years. In 2026, that story has reversed. Six of seven are now in the red for the year, with Microsoft down about 20% and Amazon down roughly 11%. The Roundhill Magnificent Seven ETF is down over 7% year-to-date.
Investors are questioning whether the enormous capital expenditures these companies are pouring into AI (a combined ~$600 billion expected in 2026) will generate returns quickly enough to justify current valuations. Until there's a clearer answer, the AI trade is fragile.
What to Watch This Week
Wednesday's Nvidia earnings are the headline event. Beyond that, investors are watching for signals from Trump's State of the Union address tonight (Tuesday) on trade policy direction, and for any new economic data that might change the Federal Reserve's calculus on interest rates.
Sources: CNBC, Bloomberg, Yahoo Finance, Reuters