US equities closed lower on Monday, with both the S&P 500 and Nasdaq suffering significant losses. The primary driver behind the sell-off was a sharp decline in semiconductor shares, particularly Nvidia. The chipmaker’s market value fell by nearly $600 billion, following news about a new artificial intelligence (AI) model from the Chinese startup DeepSeek. DeepSeek’s model reportedly uses cheaper chips and less data, raising concerns that it could threaten the dominance of US-based AI companies like Nvidia, which rely on more expensive hardware.
Semiconductor Shares Take a Hit
Nvidia’s fall led to broad-based declines in semiconductor shares, pushing the Nasdaq down by 3%, while the S&P 500 dropped 1.5%. The Dow Jones, however, gained around 0.6%, supported by a rise in large-cap value stocks, suggesting a shift toward more stable equities in response to market uncertainty.
- Nvidia’s market value dropped nearly $600 billion due to concerns about DeepSeek’s new AI model.
- Nasdaq fell by 3%.
- S&P 500 dropped 1.5%.
- Dow Jones gained 0.6%, driven by large-cap value shares.
Despite the turbulence, US technology companies are expected to remain dominant in the global AI race. They benefit from strong balance sheets, transparency, and stricter regulatory frameworks, making them more attractive to investors compared to their international counterparts. While competition from DeepSeek may foster greater efficiency and innovation, the US tech giants are in a strong position to respond.
Global Market Reactions: Asia, Europe, and Currency Developments
Asian Markets: Mixed Performance
Asian markets showed a mostly flat trend on Tuesday, with Japan’s Nikkei 225 leading losses. The concern over DeepSeek’s AI model negatively impacted chipmakers across the region. Meanwhile, Hong Kong’s Hang Seng saw a slight rise, and Australian equities remained muted ahead of upcoming inflation data. India’s Nifty 50 displayed signs of recovery.
European Market Movements
European equity indices closed lower on Monday. The STOXX 50 dropped by 0.6%, while the STOXX 600 closed flat. Tech stocks, such as ASML, ASMI, and Infineon, suffered heavy losses due to concerns surrounding the semiconductor sector. On the other hand, LVMH, along with banks and consumer defensive equities, performed well. LVMH’s stock rose by 3%, showing strength in the luxury goods sector.
US Dollar Rebounds
The US dollar index rose above 107.8 on Tuesday, recovering from six-week lows. The dollar gained significantly against the euro, which traded at 1.0435. This strength in the US dollar came amid President Trump’s tariff threats and increased caution among traders ahead of the February 1 tariff deadline.
Oil Market: Stabilization Amid Supply Concerns
Oil prices stabilized on Tuesday after a steep decline in the previous week. The drop was mainly attributed to concerns over an increase in US supply under President Trump and weaker long-term demand, particularly from China. Trump’s push to ramp up US production and fears of reduced energy demand due to more efficient AI models like DeepSeek also weighed on the oil market.
NATO’s Call for Increased Defense Spending
NATO Secretary General Mark Rutte called on alliance members to raise defense spending beyond the current 2% GDP target. He cited evolving global challenges and insufficient current spending levels. He also accused Russia of destabilizing NATO member states through cyberattacks, sabotage, and aggression against Ukraine.
Company Updates: Stock Price Movements
The following companies saw movements in their stock prices due to earnings reports, analyst ratings, or other significant news:
- Nvidia acknowledged that DeepSeek’s rise highlights ongoing demand for its chips, particularly for inference applications. However, Nvidia remains focused on high-end, more expensive hardware solutions.
- AT&T exceeded expectations for Q4, driven by strong wireless and fiber subscriber growth, boosting shares by over 7%.
- Ryanair reported stronger-than-expected Q3 profits of €149 million but cut passenger forecasts due to Boeing delivery delays.
- Mercedes-Benz expects its passenger car division’s adjusted margin for Q4 2024 to surpass its forecast of 6%-7%, even with challenges in the Chinese market.
- Estee Lauder is reviewing its portfolio of beauty brands under new leadership, following declining demand, especially in China.
- Google will update its Maps platform to rename the Gulf of Mexico as the “Gulf of America,” a decision that has sparked mixed reactions.
Upcoming Data and Events: What to Watch
Key Economic Data from the US
The US is set to release key economic data today, including Durable Goods Orders and Consumer Confidence. In addition, earnings reports from major companies such as Starbucks, Chubb, Boeing, General Motors, and Lockheed Martin will be watched closely.
Earnings Reports in Europe
In Europe, LVMH and SAP are expected to report their earnings soon, providing more insights into the luxury goods and software sectors.
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