Market Rebound Ahead of Earnings Season
After a tumultuous Monday, futures tied to the S&P 500 and Nasdaq are on the rise, signaling a potential rebound in the market. The sudden shift in sentiment comes on the heels of a steep selloff, triggered by the emergence of a low-cost Chinese artificial intelligence model that sent shockwaves through the tech industry.
AI Model Sparks Concerns
Chinese startup DeepSeek’s AI models, touted as comparable to industry-leading models in the US at a fraction of the cost, have raised questions about the hefty investments made by mega-cap tech companies in AI research and development. As analysts at BCA Research noted, “The narrative on Monday was that the massive sums spent on AI capex by mega-cap tech companies could be somewhat obsolete if a cheaper solution exists.”
Tech Stocks Regain Ground
In response to the news, AI chip leader Nvidia saw its stock rise 4.8% in premarket trading, recovering some of the $593 billion lost in market value on Monday. Other AI-linked stocks, including Oracle and Broadcom, also regained some ground, rising 3.5% and 4%, respectively.
Power Companies Benefit
Power companies, which are expected to see a surge in demand from energy-intensive data centers needed to develop AI technology, are broadly higher after tumbling a day earlier. Vistra and GE Vernova added 4.6% and 3%, respectively.
Earnings Season Takes Center Stage
This week, company earnings will be in the spotlight, with Boeing, General Motors, and Lockheed Martin set to report quarterly results later in the day. The “Magnificent 7” members, including Microsoft, Facebook-parent Meta, Apple, and Tesla, are slated to report later this week.
Federal Reserve and Economic Data in Focus
The Federal Reserve is widely expected to hold its lending rate steady in its first interest-rate decision of the year on Wednesday. Additionally, the December reading of personal consumption expenditures (PCE) is scheduled for Friday, and a January consumer confidence reading is due at 10 a.m. ET later in the day.
Trade Tensions Resurface
U.S. President Donald Trump’s plans to impose tariffs on imported computer chips, pharmaceuticals, and steel have reignited concerns about inflationary pressures and the potential impact on Fed rate cuts. A media report suggests that newly elected Treasury secretary Scott Bessent is pushing for new universal tariffs on U.S. imports, starting at 2.5% and rising gradually by the same amount each month.
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