U.S. Stock Selloff and Treasury Rally: Risk-Off Sentiment Drives Market Rotation on February 12, 2026

On February 12, 2026, U.S. financial markets experienced a pronounced “risk-off” day, with investors fleeing equities in favor of the safety of government bonds. The broad-based selloff affected all major indices, while long-term Treasury bonds recorded their strongest single-day performance in several months [1]. This market movement reflects growing investor concern about AI-related disruption across multiple sectors and uncertainty regarding the sustainability of technology sector valuations.

The trading session demonstrated classic flight-to-safety characteristics, with defensive sectors outperforming riskier growth areas. Market-wide volume reached 22.45 billion shares, substantially above the 20-session average of 20.78 billion, indicating heightened investor conviction and activity during the selloff [2][0]. This elevated volume suggests the move was driven by meaningful sentiment shifts rather than purely technical trading patterns.

The selloff was broad and significant across all major U.S. indices. The S&P 500 closed at 6,832.77, representing a 1.79% decline, while the NASDAQ Composite fell 2.36% to close at 22,597.15 [2]. The Dow Jones Industrial Average declined 1.71% to finish at 49,451.99. Most notably, the Russell 2000—representing small-cap stocks—experienced the sharpest decline at 2.58%, closing at 2,615.83, suggesting that smaller companies faced particular selling pressure [0].

The NASDAQ’s outsized decline reflects the index’s heavy concentration in technology stocks, which bore the brunt of investor selling amid concerns about AI capital spending and potential disruption to established business models. The small-cap weakness indicates that investors were not merely rotating between growth and value but were broadly reducing equity exposure, a characteristic more typical of genuine risk aversion than sector-specific rebalancing.

The sector performance breakdown revealed a clear defensive rotation consistent with historical patterns during risk-off episodes [0]. The Consumer Defensive sector emerged as the primary beneficiary, gaining 2.03% as investors sought refuge in traditionally stable, non-cyclical businesses. Utilities posted a 0.40% gain, while Basic Materials marginally advanced 0.05%, suggesting that some investors viewed these sectors as relative safe havens.

Conversely, the Financial Services sector experienced the steepest decline at 2.92%, followed by Consumer Cyclical at 2.88% and Technology at 2.39% [0]. Healthcare declined 1.33%, Energy fell 1.52%, and Communication Services dropped 2.16%. Industrials declined 2.26%, reflecting concerns about economic growth prospects. This sector configuration—defensive sectors advancing while cyclical and growth sectors decline—represents a textbook risk-off rotation pattern.

The Technology sector’s underperformance is particularly significant given its outsized contribution to market returns in recent years. The concentration of losses in this sector suggests investors are reassessing the valuations of AI-related companies, particularly in light of massive planned capital spending by hyperscalers including Amazon, Google, Meta, and Microsoft, which collectively expect to spend approximately $650 billion on AI infrastructure this year [2][4].

Several technology stocks experienced particularly sharp declines during the session. Cisco Systems (CSCO) fell 12.3%—its largest single-day decline since May 2022—while AppLovin (APP) plunged 19.7%, representing the largest percentage decline in the S&P 500 software index [2]. Major technology names including Apple, Nvidia, Broadcom, and Amazon were all dragged lower by the broader sector weakness, reflecting the interconnected nature of technology valuations in the current market environment.

The software sector specifically has faced approximately $2 trillion in market value erosion in preceding weeks as investors expressed concerns about AI companies potentially displacing legacy software providers [4]. This fear reflects a broader market reassessment of which companies will ultimately benefit from AI adoption and which may face competitive displacement.

Trucking and logistics stocks experienced particularly severe selling pressure amid concerns about AI automation disrupting the freight industry. Landstar (LSTR) fell 15.6%, CH Robinson (CHRW) declined 14.5%, and Expeditors International (EXPD) dropped 13.2% [2]. According to analysts at Global X, weakness in the transport sector was driven by a combination of jobs report concerns and AI automation worries [2].

This sector-specific weakness follows the release of a new AI freight-scaling tool from Algorhythm Holdings, which has raised concerns about potential productivity displacement in the logistics industry [2][3]. The transportation sector’s sensitivity to AI disruption concerns represents a relatively new vector of investor anxiety that extends beyond the technology sector itself.

Despite the broad market weakness, some stocks posted significant gains. Equinix (EQIX) surged 10.4% after forecasting annual revenue above analyst estimates, benefiting from continued strong demand for data center infrastructure to support AI computing requirements [2]. This outlier performance demonstrates that not all AI-related businesses are facing negative sentiment—companies directly enabling AI infrastructure continue to attract investor confidence.

The bond market’s flight to safety was reflected in declining Treasury yields across maturities. The 10-year Treasury yield fell to a two-month low, representing a significant rally for long-duration bonds [1][3]. The 2-year Treasury yield declined approximately 5 basis points to 3.46% [3]. The yield decline in long-term Treasuries was particularly pronounced, consistent with the observed “risk-off” sentiment.

The inverse relationship between bond yields and prices means that declining yields represent gains for bondholders. Long-term Treasury ETFs (TLT) attracted significant buying pressure as investors sought the safety of government bonds [0]. The magnitude of the Treasury rally—described as the best day in months—indicates meaningful capital flows from equities into fixed income.

The Treasury market’s performance serves as a critical sentiment indicator. When long-term yields decline significantly while equities sell off, it typically indicates that investors are simultaneously reducing risk appetite and revising economic growth expectations downward. The two-month low in the 10-year yield suggests that bond market participants see increased economic uncertainty or perceive reduced inflation risks [1][3].

A central theme emerging from the market action is what analysts describe as a paradox surrounding AI-related investments. Investors are simultaneously “punishing AI hyperscalers” for massive capital spending while also fearing AI disruption to traditional business models [3][4]. This creates a challenging environment for AI-related companies regardless of their specific positioning—those spending heavily on AI infrastructure face scrutiny over returns, while those potentially displaced by AI face existential concerns.

Jack Herr of GuideStone Funds characterized the current environment as a “prove it” year for AI, suggesting that investors are no longer willing to simply extrapolate future benefits from current AI investments but are demanding demonstrated returns [2]. This shift in investor sentiment represents a potential inflection point for AI-related valuations.

The elevated trading volume of 22.45 billion shares—approximately 8% above the 20-day average—suggests that institutional investors were actively rebalancing portfolios toward defensive assets rather than merely passively following a trend [2][0]. High-volume selloffs typically indicate stronger underlying conviction and may suggest more sustained position adjustments rather than short-term trading noise.

Marc Dizard of Huntington Wealth Management noted that markets are positioned “in an in-between zone between two key macro reports,” suggesting that the selloff occurred amid uncertainty about upcoming economic data [2]. This positioning may have amplified market reactions to individual stock-specific news and sector concerns, as investors lacked clear macro guidance to anchor expectations.

Several factors warrant careful monitoring following this market action. The concentration of market returns in a small number of technology and AI-related stocks has created elevated correlation risk, meaning that concerns about this sector have outsized effects on overall market performance. The Treasury yield decline to two-month lows may signal growing economic concerns beyond just sector-specific issues [1][3].

AI disruption fears are creating significant volatility in sectors not traditionally considered technology-sensitive, such as transportation and logistics. While the actual timeline and economic impact of AI on these sectors remains uncertain, the market’s immediate negative reaction demonstrates investor sensitivity to disruption narratives.

Although 75% of S&P 500 companies reporting Q4 earnings have shown EPS growth of 12% year-over-year per BofA/Wells Fargo data, the AI spending overhang remains a concern [4]. The question for investors is whether current earnings levels can be sustained given potential disruption to business models and the uncertain returns on massive AI capital expenditure programs.

Broader fiscal concerns may be contributing to risk aversion. U.S. borrowing of $43.5 billion weekly in FY2026 and interest costs on track to exceed $1 trillion represent structural factors that could influence investor sentiment toward risk assets over an extended period [4].

The February 12, 2026 market action represents a significant risk-off event driven by convergent pressures including AI sector uncertainty, transportation/logistics AI disruption fears, and broad profit-taking following an extended rally. The Treasury rally to two-month lows reflects genuine investor concern about near-term market direction.

The defensive sector rotation—particularly Consumer Defensive’s 2.03% gain—and elevated trading volume suggest this was not merely a technical correction but reflected meaningful sentiment shifts among institutional investors. The breadth of the selloff, affecting all major indices and sectors, indicates broad-based risk aversion rather than company-specific concerns.

Upcoming factors to monitor include the direction of Treasury yields, AI spending execution and returns at major hyperscalers, the sustainability of defensive sector outperformance, and upcoming macro economic data releases that may provide clearer guidance on the economic outlook. The current environment appears to be characterized by uncertainty and a willingness to reduce risk exposure, conditions that typically favor defensive positioning until clearer positive catalysts emerge.