FILE PHOTO: A trader works inside a booth on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., November 21, 2025. REUTERS/Brendan McDermid/File Photo
NEW YORK, Feb 4 (Reuters) - The software sector's deepening selloff on Wednesday failed to lure bargain hunters, with the dip-buying reflex that has rescued countless tech routs conspicuously absent.
After a broad selloff on Tuesday that saw the S&P 500 software and services index fall nearly 4%, the sector slipped another 1% on Wednesday, down for a sixth-straight session, extending a decline that has shifted from AI optimism to disruption fears.
Unlike other recent market slides, where investors have been quick to snap up battered shares, the worst selloff in the sector since 2022, when rising rates hammered software stocks, invited few buyers.
"In general, our customers have not been as eager to buy dips in software as they are for precious metals and semis," Steve Sosnick, chief strategist at Interactive Brokers, said.
"While it’s possible that our clients are buying dips in software, it is by no means in the forefront of their activity," he said.
Options traders also showed a lack of appetite for scooping up the battered software names.
"Software continues to trade heavy, and the options flow remains overwhelmingly defensive," Chris Murphy, co-head of derivative strategy at Susquehanna Financial, noting defensive activity in the options on iShares Expanded Tech-Software Sector ETF and ARK Innovation ETF. IGV shares were down 3%, while the ARKK ETF fell nearly 7%.
"In IGV and ARKK, we’ve seen traders pressing downside exposure rather than stepping in with dip-buying interest," Murphy said.
In general, the tone in software remains defensive, Murphy said.
Interactive Brokers' Sosnick said Microsoft, while not purely a software company, was one notable exception to the generally bearish tone in the sector, with the company drawing buyers. Microsoft shares, down about 15% since the company reported results on January 28, were up about 1% on Wednesday.
Still, short sellers, who aim to sell borrowed shares to buy them back at a profit, were emboldened by the sharp declines in the sector.
These traders were selling shares even as stocks came under pressure, Leon Gross, research analyst at S3 Partners, said.
"Historically, Microsoft behaves like a reversal stock, with shorts covering on the way down. Now it is trading like a momentum‑driven, distressed name, with shorts increasing into weakness," Gross said, noting that Microsoft short interest had increased by about 20% over the past week.
(Reporting by Saqib Iqbal Ahmed, Editing by Nick Zieminski)
