Wall Street tumbles amid DeepSeek challenge

World shares are mostly lower after Wall Street edged back from its record highs on Monday. US stock futures sank as investors weighed a significant challenge from a Chinese firm, DeepSeek, to US dominance in artificial intelligence (AI). Major technology companies that had enjoyed a boom due to AI advancements are experiencing sharp declines.

This morning's sharp decline in US yields (Bloomberg chart below) is a topic of considerable debate. Explanations circulating include:
  Spillover from the "risk-off" sentiment triggered by China’s DeepSeek news,
  Falling inflation expectations, driven by the perception that the… pic.twitter.com/T6takocXve

— Mohamed A. El-Erian (@elerianm) January 27, 2025

Chipmakers Nvidia and Broadcom both suffered double-digit percentage drops following DeepSeek’s demonstration of a competitive AI chatbot. Software giant Oracle tumbled 8%, while Microsoft slid 3.8% and Amazon fell 3.3%. Google’s parent company, Alphabet, and Facebook’s parent, Meta, each lost about 3.5%.

Up another 0.7% today, the price of gold is nearing the all-time record close attained at the end of October.
This is not a "flight to safety" move given what is happening to US stocks (S&P closing at a record high yesterday) and government bonds (US 10-year at 4.61%).
A better… pic.twitter.com/nLKz0MGymP

— Mohamed A. El-Erian (@elerianm) January 24, 2025

Futures for the S&P 500 sank 2.1% before the bell, while futures for the technology-heavy Nasdaq tumbled 3.8%. Futures for the Dow Jones Industrial Average declined 0.7%.

U.S. Composite ⁦@SPGlobalPMI⁩ ticked down sharply in January but is still consistent with relatively healthy GDP growth pic.twitter.com/zXI5ci2cIJ

— Liz Ann Sonders (@LizAnnSonders) January 27, 2025

Analyst Dan Ives of Wedbush Securities emphasized that the US tech sector remains far ahead of China regarding AI infrastructure. “Launching a competitive large language model for consumer use cases is one thing.

Wall Street impacted by DeepSeek competition

Launching broader AI infrastructure is another ballgame, and nothing with DeepSeek makes us believe anything different,” Ives noted. The US dollar dipped against the Japanese yen, while the euro saw a slight increase against the dollar. US crude fell 61 cents to $74.05 per barrel, and Brent crude decreased by 66 cents to $76.89 per barrel. The Federal Reserve is holding its latest policy meeting later this week, with traders not expecting recent weak data to push the Fed to cut its main interest rate. The central bank is expected to hold steady on rates.

European trading

Germany’s DAX dropped 0.9% in European trading at midday, while the CAC 40 in Paris shed 0.6%. Britain’s FTSE 100 declined 0.2%. In Asia, Hong Kong’s Hang Seng gained 0.7%, buoyed by gains in e-commerce giant Alibaba and search engine company Baidu. However, the Shanghai Composite Index fell slightly after a survey showed a drop in export orders for Chinese manufacturers. Tokyo’s Nikkei 225 also experienced a decline, extending losses after the Bank of Japan raised its benchmark interest rate to 0.25%, the highest level since 2008. Computer chip-related shares in Tokyo saw significant drops, with Tokyo Electron down 4.9% and test equipment maker Advantest sinking 8.6%.