Summary of market context
Futures tied to the major U.S. stock indices moved softer on Friday as traders adopted a cautious stance ahead of a delayed release of the January consumer price index. The inflation snapshot is expected to show slower annual inflation but still a rate above the Federal Reserve's 2% target. Amid the broader unease, two technology-related names - networking equipment supplier Arista Networks and semiconductor-equipment leader Applied Materials - jumped in extended trading after reporting quarterly results and providing forward guidance that the market interpreted favorably.
1. Futures retreat as investors weigh AI risks and CPI
By 02:52 ET (07:52 GMT), U.S. futures suggested a tentative tone: the Dow futures contract was down 109 points, or 0.2%; S&P 500 futures had slipped 14 points, or 0.2%; and Nasdaq 100 futures were lower by 49 points, or 0.2%. The moves reflected investor caution following a steep pullback in the previous session, which was driven primarily by losses in technology shares and renewed concern about the potential market impact of artificial intelligence.
Market participants spent the week digesting what some see as the disruptive potential of AI across a range of sectors. The tech-heavy Nasdaq Composite led declines in the prior trading day as traders grappled with possible operational upheaval for industries spanning financial services, real estate and insurance brokerage.
Transport stocks were another casualty of the market's nervousness. A report that a new tool from AI firm Algorhythm Holdings could make freight shipping more efficient prompted investors to question demand for logistics services, weighing on names such as C.H. Robinson and RXO.
Individual corporate results amplified the anxiety. Shares of Cisco Systems plunged more than 12% after the networking equipment maker reported an underwhelming quarterly gross margin. Analysts and market observers have linked some margin pressure to rapidly rising memory chip prices, a phenomenon that has also affected other hardware original equipment manufacturers that rely on these components for switches and routers.
Analysts at Vital Knowledge captured the sell-side mood in a note, saying: "[T]he big problem for the market is that AI has now decidedly become a net negative, pressuring equities in three primary ways: morphing the mega-cap/hyperscaler models in a less favorable [...]; decimating legacy industries due to fears (mostly imagined, but some real) of disruption and displacement [...]; and hurting hardware OEM margins by driving up the cost of memory."
2. CPI in focus
Attention shifted to Friday's delayed release of January inflation data. Headline consumer prices are forecast to have risen 2.5% year-on-year in January, down from 2.7% in December. On a month-on-month basis, the Labor Department's consumer price index is expected to match December's 0.3% pace.
Core CPI, which excludes volatile food and energy components, is anticipated to slow to 2.5% year-on-year while accelerating to 0.3% month-on-month versus the previous month. Investors will use these figures as a gauge for inflation momentum and to reassess the likely path of Federal Reserve policy.
Policymakers at the Fed left interest rates unchanged at their January meeting, citing signs of steady - albeit elevated - inflation and a "stabilizing" labor market. Despite a moderation in price gains in recent months, inflation remains above the Fed's 2% target, a fact that could support the case to keep borrowing costs at current levels for the time being.
Adding to the policy backdrop, an outsized U.S. payrolls report earlier in the week showed the economy added far more jobs than expected in January. Analysts cautioned that much of the employment gain was concentrated in the healthcare sector, which has historically benefited from a larger older population. Against this mix of data, investors do not expect the Fed - which slashed rates multiple times last year to help prop up the labor market - to implement another cut before at least the second half of 2026.
"Today’s U.S. CPI report is likely to have a smaller market impact than Wednesday’s payrolls. [The Fed] has been signaling little urgency to cut again, and it’s mostly the jobs market that can move the needle," analysts at ING said in a note.
3. Arista Networks rallies after results and margin guidance
Arista Networks shares climbed sharply in after-hours trading after the network equipment vendor reaffirmed its full-year gross margin guidance despite margin pressure from heightened memory prices. Like Cisco, Arista supplies ethernet switches and routers that form the backbone of data center networks and has been contending with an extended memory-chip shortage that has pushed component costs higher.
Arista's fourth-quarter gross margin declined year-over-year, but the margin still beat Wall Street estimates. The current-quarter margin estimate of 62.5% came in below consensus, yet the company maintained its full-year projected range. Arista also reported fourth-quarter revenue of $2.49 and earnings per share of $0.82, both of which exceeded expectations. In addition, the company provided a first-quarter sales outlook of roughly $2.6 billion.
Analysts at Vital Knowledge noted that Arista has largely offset input cost pressures through tight expense management and continued strong demand from customers, including large technology firms that have been increasing AI-related spending.
4. Applied Materials posts strong outlook on AI and memory demand
Applied Materials also saw shares rally in after-hours trading after issuing a robust forecast. The company said it expects fiscal second-quarter sales of around $7.65 billion, plus or minus $500 million. This range compares to LSEG estimates cited by Reuters of $7.01 billion. Adjusted earnings per share were projected at approximately $2.64, plus or minus $0.20, which would top Wall Street estimates.
CEO Gary Dickerson pointed to an "acceleration of industry investments in AI computing" as a primary driver of the upbeat outlook and emphasized "high growth rates for leading-edge logic" chips that underpin graphics processors and central processing units. Dickerson also predicted that Applied's dynamic random access memory business - the stacked memory chips used alongside advanced AI processors - will be one of the company's fastest-growing divisions this year.
"This print felt more like a leap forward, with [Applied] surprising on multiple fronts," analysts at Morgan Stanley said in a note.
5. Gold firms amid geopolitical and policy uncertainty
Gold prices moved higher in European trading as bullion pared losses from the previous session amid elevated uncertainty over U.S. interest-rate prospects and rising tensions in the Middle East. Investors were also watching the forthcoming U.S. inflation numbers for additional cues.
Silver advanced as well after recovering some of a roughly 10% drop in the prior session. Metal prices have shown volatility over the past week, leaving markets sensitive to swings in sentiment.
Safe-haven demand supported bullion after reports indicated Washington planned to deploy a second aircraft carrier - the USS Gerald R. Ford - to the Middle East as nuclear negotiations with Iran faltered. By 03:55 ET, spot gold had risen 1.2% to $4,979.75 an ounce, while gold futures were up 1.1% at $5,000.91 per ounce. Spot prices had fallen more than 3% in the session prior.
Market implications and closing observations
The confluence of anticipated softer year-over-year CPI, persistent above-target inflation, and a strong jobs print that showed concentrated gains in healthcare has left investors parsing which economic signal will be most important to the Fed's next moves. Meanwhile, the market is wrestling with AI-related risks that are pressuring equities through a trio of channels, according to market strategists: alterations to hyperscaler and mega-cap business models, potential disruption to legacy industries, and margin compression for hardware manufacturers due to rising memory costs.
At the corporate level, the divergent reactions in after-hours trading - where Arista and Applied Materials were rewarded for results and guidance - underscore the market's focus on firms that can translate AI investment trends into stronger sales or margin resilience. Conversely, other technology names have been penalized when rising input costs or margin softness appear to threaten profitability.
Investors will be watching the CPI release closely for confirmation of the inflation trajectory. In the near term, markets appear to be balancing geopolitical risk, AI-driven sector disruption, and central bank policy expectations as they price assets across technology, transportation, semiconductors, and precious metals.
Key takeaways
- U.S. futures dipped ahead of the January CPI, which is forecast to show slower annual inflation but still above the Fed's 2% goal.
- AI-related concerns are creating pressure across sectors - from tech hardware margins to transport and legacy industries - contributing to recent market volatility.
- Arista Networks and Applied Materials both posted results and forward guidance that were well received in after-hours trading, reflecting robust demand tied to AI investment and memory-related dynamics.