Stocks recover, after Deepseek driven sell off

Macroeconomic/ geopolitical developments

• Despite a partial rebound from Monday’s tech-driven sell-off, the S&P 500 and Nasdaq ended the week lower, while the Dow posted a modest gain, with Treasury yields declining and market sentiment remaining cautious amid ongoing concerns over AI competition.
• European stock markets reached all-time highs, led by the STOXX 600 and Germany’s DAX, as the ECB’s interest rate cut boosted optimism, with the STOXX 600 closing January up 6%, outpacing the S&P 500.

• The emergence of Chinese AI startup DeepSeek triggered a sharp sell-off in tech stocks, led by a nearly 17% drop in Nvidia, as investors reassessed AI spending efficiency and competitive risks, though markets later stabilized amid optimism over broader AI adoption.

• The Federal Reserve kept interest rates steady at 4.25%-4.50%, citing solid economic growth and persistent inflation, with Chair Jerome Powell signalling no rush to cut rates until clear progress on inflation or labor market weakness emerges.
• This week, Apple, Microsoft, and Meta exceeded expectations, while Tesla missed on both revenue and earnings, but optimism around AI-driven projects helped its stock recover, contributing to a broader trend of strong corporate earnings growth.

• Next week, investors will focus on the earnings reports from Alphabet and Amazon, particularly their cloud business growth, as well as the US jobs report, which could influence market sentiment and the Federal Reserve’s stance on interest rate cuts.

Global financial market developments

• US averages mostly dipped on the week, whilst European indices pushed notably higher.
• US and European bond yields were lower on the week.
• The US Dollar Index staged a rebound, after weakness though much of January.
• Gold futures rallied, hitting a new all-time-high.
• Oil futures continued their January slide lower from a multi-month high early this year.

Key this week

Central Bank Watch: The main central bank activity this week is the Bank of England Interest Rate Decision, Monetary Policy Report and Minutes on Thursday.

Macro Data Watch: The main macro data releases this week are the Global PMI on Monday and Wednesday and the US Employment Report on Friday. Some other releases of note are the EU CPI on Monday, US Factory Orders on Tuesday and EU Retail Sales on Thursday,

Earnings Watch: The main US Q4 earnings releases this week are Alphabet on Tuesday and Amazon on Thursday.

Steve Miley (The Market Chartist)

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued