U.S. stock futures dropped sharply on Monday after the rise in the popularity of DeepSeek, a Chinese artificial intelligence model that demonstrates high performance at a significantly lower cost. This development sent shockwaves through the market, challenging the belief that massive GPU investments are necessary for powerful AI, particularly threatening big tech companies.
All major index futures were down, with the Nasdaq 100 falling more than 4.3%. This drop comes after the indices had posted gains for two consecutive weeks.
Apart from this, five of the total ‘Magnificent Seven' will report their earnings this week.
The 10-year Treasury yield stood at 4.50%, while the two-year yield was at 4.17%. According to the CME Group's FedWatch tool, there is a 99.5% chance that the Federal Reserve will keep interest rates unchanged later this week.
| Futures | Change (+/-) |
| Nasdaq 100 | -4.38% |
| S&P 500 | -2.43% |
| Dow Jones | -0.87% |
| Russell 2000 | -1.12% |
The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ both experienced negative premarket trading on Thursday. SPY fell 2.36% to $593.6, and QQQ plunged 4.10% to $507.92, according to Benzinga Pro data.
Cues From The Last Session
U.S. stocks ended lower, with the S&P 500 retreating after hitting record highs on Friday. Nvidia Corp. NVDA dropped more than 3%, and Tesla Inc TSLA fell over 1%. However, all three major indices posted their second consecutive positive week, with the S&P 500 and Nasdaq rising 1.7%, and the Dow up 2.2%.
Twilio Inc TWLO shares surged over 20% following strong Q4 guidance and a revenue increase, prompting analysts to raise price targets.
Economic data showed the S&P Global Services PMI dropped to 52.8 in January, while the Manufacturing PMI rose to 50.1. Most S&P 500 sectors closed higher, with gains in communication services, utilities, and consumer staples. However, tech and energy stocks declined.
The Dow fell 140 points or 0.32% to 44,424.25, the S&P 500 lost 0.29% to 6,101.24, and the Nasdaq Composite dropped 0.50% to 19,954.30. Russell 2000 Index slipped 0.30% to 2,307.74.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -0.50% | 19,954.30 |
| S&P 500 | -0.29% | 6,101.24 |
| Dow Jones | -0.32% | 44,424.25 |
| Russell 2000 | -0.30% | 2,307.74 |
Insights From Analysts
Assessing the DeepSeek impact, the global macroeconomic expert and market strategist, Anish Nanda said that the speed, cost, and focus of China's progress on chips is causing a rotation out of growth into value stocks.
However, he added that it remains to be seen if DeepSeek will prove to be a viable, cheaper alternative in the long term and if they can consistently innovate and take a leadership position in the sector that can be sustained. "Also little is known about the lab and its founder, Liang WenFeng," he told Benzinga.
"Nevertheless, it still poses a risk if U.S. tech giants' pricing power is finally being threatened and if their massive AI spending needs a rethink. Only time will tell who will emerge the winner in the long run. A tough battle seems to be on the cards.”
Ed Yardeni and Eric Wallerstein of Yardeni Research pointed out that this week will see a slew of big tech companies report their earnings.
"The next round of fun begins this week and next week when the Magnificent-7 report Q4 results," the note said.
Microsoft Corporation MSFT, Tesla Inc TSLA, and Meta Platforms Inc META will report earnings on Wednesday, Jan. 29. Apple Inc AAPL and Amazon.com Inc AMZN will report on Thursday, Jan. 30.
Whereas Alphabet Inc GOOG GOOGL will report on Tuesday, Feb. 4, Nvidia Corporation NVDA, on the other hand, won’t report until Feb. 26.
"The question is whether they will disappoint because their capital spending on AI is soaring faster than their revenues. That could squeeze their collective profit margin. The forward profit margin of the Mag-7 has soared from 18.0% at the start of 2023 to 25.5% during the Jan. 25 week," the note added.
As per the CME's FedWatch tool, the probability of having no change in the rates was at 65.6% for March and 44.4% for May.
Talking about this and Bank of Japan's hike last week, the CEO of Mind Money Julia Khandoshko said, "In the current environment of global monetary uncertainty, with no clear timeline for when the Federal Reserve might further continue its easing rates, the BoJ's decision looks like a calculated response to economic challenges."
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Upcoming Economic Data
Here’s what investors will keep an eye on for the week:
- On Monday, December's new home sales will be announced at 10:00 a.m., ET.
- On Tuesday, durable goods orders data for December will be out by 8:30 a.m., ET.
- November's S&P Case-Shiller home price index for 20 cities will be released at 9:00 a.m., ET.
- Consumer confidence data for January will be announced at 10:00 a.m., ET.
- On Wednesday, December's data for advanced U.S. trade balance in goods, advanced retail inventories, and advanced wholesale inventories will be released at 8:30 a.m., ET.
- The FOMC interest-rate decision will be out at 2:00 p.m. and Chairman Jerome Powell will address a press conference at 2:30 p.m., ET.
- On Thursday, the GDP data for the first quarter and the initial jobless claims data till Jan. 25, will be released at 8:30 a.m. ET.
- December's pending home sales will be out at 10:00 a.m., ET.
- On Friday, employment cost index data for Q4 will be released at 8:30 a.m., ET.
- Fed Governor Michelle Bowman will be speaking at 8:30 a.m., ET.
- Also, the core and headline personal consumption expenditure, along with personal income and spending data will be announced at 8:30 a.m., ET.
- The Chicago Business Barometer (PMI) for January will be out by 9:45 a.m., ET.
Stocks In Focus:
- AT&T Inc T was up 1.23% in premarket on Monday ahead of its earnings before the opening bell. Analysts expect it to report quarterly earnings of 50 cents per share on revenue of $32.04 billion.
- Nucor Corp NUE was down 0.87% as Wall Street expects it to report quarterly earnings of 65 cents per share on revenue of $6.76 billion after the closing bell.
- Brown & Brown Inc BRO was up 0.94% ahead of its earnings slated to be announced after the closing bell. Analysts expect it to report quarterly earnings of 77 cents per share on revenue of $1.12 billion.
- Sanmina Corp SANM was up 0.05% as Wall Street expects it to report quarterly earnings of $1.36 per share on revenue of $1.98 billion during market hours.
- Logility Supply Chain Solutions Inc LGTY was up 23.85% after Aptean announced an agreement to acquire Logility in a $14.30-per-share all-cash deal.
- Following the DeepSeek development, Microsoft Corporation MSFT was down 7.22%, Tesla Inc TSLA slipped 4.54%, and Meta Platforms Inc META declined 5.94%. Also, Apple Inc AAPL and Amazon.com Inc AMZN dropped by 0.35% and 5.68%, respectively.
- Alphabet Inc GOOG plunged 4.30% and Nvidia Corporation NVDA plummeted 11.81% in premarket.
- Tevogen Bio Holdings Inc TVGN was up 53.33% after the company expanded collaboration with Microsoft to advance AI-Powered PredicTcell Technology on Azure.
- HWH International Inc HWH was up 14.70% after it received a notice on Jan. 23 from the Nasdaq Stock Market, informing the company that it has demonstrated compliance with Nasdaq's Listing Rule 5550(b).
Commodities, Gold And Global Equity Markets:
Crude oil futures were trading lower in the early New York session by 0.20% to hover around $74.51 per barrel.
The gold spot index was down by 0.08% to $2,768.92 per ounce. The Dollar Index was down 0.24% at 107.181 level.
Asian markets closed mixed on Monday as Hong Kong's Hang Seng, Australia's ASX 200, and South Korea's Kospi index rose. Whereas, India's S&P BSE Sensex, China's CSI 300, and Japan's Nikkei 225 index fell. European markets were lower in trade.
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