AI and software

The month of January was positive for the S&P500. The January barometer tells us that the year should be positive as well, with a probability of 70-80%. It has been particularly strong for small caps which went up between 6-8%. There may be a rotation in size going on in 2026. What has started as a laggard, continuing a trend from 2025, is the software sector. As you can see see in the chart below, the drawdown that’s started at the beggining of the 4th quarter last year, continues into February, which is a cause of concern. AI is doing some damage to this sector, as the need for software solutions has decreased due to the improved ability to code by AI agents. The problem is that the software sector weights around 15% on the S&P500 and 20-30% on the Nasdaq100. But it also can become a problem on the credit market, as some of these companies have outstanding debt, am depending how you classify them, the weight on the credit indices can vary between 6-30%. The impact of AI is already being felt in the real economy, (and not the positive one) and it just has started.

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