US futures rose slightly after Monday’s rout over valuations in the artificial-intelligence sector, while the dollar advanced after US President Donald Trump said he wants to enact across-the-board tariffs that are “much bigger” than 2.5%. After suffering a record drop on Monday, Nvidia led a rebound in premarket trading one day after Chinese upstart DeepSeek prompted traders to rethink the extent of US tech dominance. As of 8:00am ET, futures on the Nasdaq 100 rose about 0.2% after the tech index suffered its worst one-day drop since mid-December as Nvidia shares climbed as much as 5% in premarket, poised to claw back some of their 17% slump. Contracts tracking the S&P 500 gained 0.2% with semis poised to recoup some of yesterday’s losses. In Europe, stocks climbed on the back of upbeat earnings. Keep an eye on USD and bond yields, which moved higher as Trump looked set to add a blanket tariff on Feb 1 which could start with a 2.5% blanket tariff and ramp from there. The commodity complex is seeing strength in Energy, weakness in Ags, and Metals are mixed. Today’s macro focus is on Durable/Cap Goods, Housing Pricing, Consumer Confidence, and regional activity indicators ahead of tomorrow's Fed decision. Starbucks, GM and Boeing are among companies to report results today.
In premarket trading, Nvidia jumped 4% after plunging 17% yesterday as Chinese artificial intelligence upstart DeepSeek prompted traders to rethink the extent of US tech dominance. Chip-related stocks advanced (Broadcom (AVGO) +2%, KLA Corp (KLAC) +1%, Marvell Technology (MRVL) +2%) as did AI infrastructure-related stocks (Constellation Energy (CEG) +2%, Oracle (ORCL) +1%, NuScale (SMR) +2%). Mag7 names were mostly higher after yesterday's rout: Magnificent Seven: Alphabet (GOOGL) +0.7%, Amazon (AMZN) -0.5%, Apple (AAPL) +0.2%, Microsoft (MSFT) +0.1%, Meta Platforms (META) +0.5%, Nvidia (NVDA) +2% and Tesla (TSLA) -0.2%. Here are some other notable premarket movers:
Nvidia was poised to recover some of its 17% slump on Monday as DeepSeek’s cost-effective AI model added fuel to the debate over the outlook for big spending by tech companies on the chipmaker’s expensive products, when lower-cost solutions are possible by fine-tuning models. That potential threat to semiconductor demand — albeit too early to gauge, according to Bloomberg Intelligence — was enough to spur concerns among investors over whether the tech megacaps deserve their premium valuations.
“Nvidia has been the number one driver of S&P 500 earnings growth over the past 18 months,” said Mike O’Rourke, chief market strategist at Jonestrading. “If Nvidia does not deliver on earnings growth, an expensive S&P 500 becomes much more expensive.”
Meanwhile, the dollar strengthened against its major peers and copper fell on President Trump's latest comments about tariffs to reporters on Monday night. The US president said he wants to enact across-the-board tariffs that are “much bigger” than 2.5%. In a speech from Florida, he also pledged tariffs on specific sectors, including semiconductors, pharmaceuticals, steel, copper and aluminum.
“I remain an equity bull, and would view this as a dip to be bought,” said Michael Brown, senior research strategist at Pepperstone Group Ltd. “That said, understandably, conviction to ‘catch a falling knife’ might be a little lacking for the time being.” The new US administration has been debating trade levies through January, with FT reporting Trump’s advisers were considering a gradual increase of about 2% to 5% a month.
European stocks also gain with the Stoxx 600 rising and set for a record close thanks to upbeat earnings offering additional support while SAP and Siemens Energy gain after upbeat results. Retail and utilities are the best performing sectors with miners and banks lagging behind. Europe’s largest lender HSBC will wind down some of its investment banking operations in Europe, the UK and the Americas as part of its restructuring efforts. Here are some of the biggest movers on Tuesday:
Earlier in the session, Asian shares fell on concerns surrounding AI-inflated tech valuations, while several markets were closed or held shortened trading sessions for the Lunar New Year holiday. The MSCI Asia Pacific Index fell as much as 0.6%. Japanese chip-tester maker Advantest and Australian data center REIT Goodman were among the biggest decliners after DeepSeek’s cheap AI model triggered a selloff in related stocks. Stocks edged higher in Hong Kong, as Tencent and other Chinese internet stocks extended gains. Large-cap shares in India advanced, while Japan’s benchmarks were mixed. Bourses in mainland China, South Korea and Taiwan were shut.
“It’s too early to call the future impact from DeepSeek, but what it has demonstrated is the crowded positioning within the potentially impacted sectors,” said Matthew Haupt, a fund manager at Wilson Asset Management. “Questions around growth outlooks are now not a 100% foregone story, so probabilities have shifted and that’s all that’s needed for a selloff.”
In FX, the Bloomberg Dollar Spot Index rose 0.3% as the dollar strengthened against most major currencies after comments from US President Trump and his Treasury Secretary stoked concern about widespread US trade tariffs. The Japanese yen and euro are among the weakest of the G-10 currencies, each falling around 0.6% against the greenback.
In rates, treasuries fell with US 10-year yields rising 2 bps to 4.56%. Bunds also dip while gilts slightly outperform Treasuries and bunds across the curve.
In commodities, oil prices advance, with WTI rising 0.5% to $73.50. Spot gold is steady around $2,744/oz. Bitcoin rises toward $103,000.
On today's calendar, we get the December durable goods orders (8:30am), November FHFA house price index, S&P CoreLogic home prices (9am), January consumer confidence and Richmond Fed manufacturing index (10am) and January Dallas Fed services activity (10:30am)
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APAC stocks were mixed amid holiday-thinned conditions on Chinese New Year's Eve and after the recent US tech sell-off. ASX 200 traded rangebound on return from the long weekend as gains in the consumer, healthcare, telecoms and financial sectors offset the losses in real estate, utilities, tech and miners, while improved Business surveys did little to spur demand. Nikkei 225 extended on the recent selling but was off worst levels amid a weaker currency and softer Services PPI data. Hang Seng kept afloat but with upside capped amid the absence of mainland participants and Stock Connect flows, while markets in Hong Kong closed early ahead of Chinese New Year celebrations.
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Sentiment has stabilised vs the considerable tech-induced losses seen in the prior session. NVIDIA (+5%) is higher in the pre-market, after sinking as much as 17% on Monday. US equity futures are mixed, but with very clear outperformance in the tech-heavy NQ +0.7% as AI-names jump higher in the pre-market, following the tech-rout seen in the prior session; NVDA +5.0%, AVGO +4.0%, MSFT +0.8%. In Europe, the Tech sector is found towards the middle of the pack; ASML (+0.8%), BE Semi (+0.3%) are both a little higher, but were initially on the backfoot. SAP (+0.2%) post earnings where the name lifted FY25 guidance. European bourses (Stoxx 600 +0.5%) opened the session on a modestly firmer footing, and have generally traded sideways throughout the morning thus far. SAP (SAP GY) Q4 Earnings: Beat on Revenue, Net Income, adj. EBIT and Cloud Revenue. Lifts FY25 guidance and expects strong FY Cloud Revenue growth. CEO: Our strong position in data and business AI gives us additional confidence that we will accelerate revenue growth through 2027”.
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DB's Jim Reid concludes the overnight wrap
This morning I’ve just released my latest chartbook, which is called “Deeply Seeking Comparisons to 2000”. We’d been working on a chartbook comparing today with 2000 for a couple of weeks (both positives and negatives), but with the emergence of DeepSeek and the selloff yesterday, it’s hopefully even more relevant now. It takes a look at crude equity valuations, looks at the earnings growth of the Mag 7 (past and future expectations), and shows how the largest stocks in the index today hold a much larger weight than they did in 2000. At a macro level, we’re in a much higher profit era relative to GDP than in 2000 which helps justify higher equities returns to some degree, even if growth is now much slower. The report should offer a framework for working out if today’s valuations are worryingly similar to 2000, or whether this time is different. See the pack for much more and remember Microsoft, Meta and Tesla report tomorrow with Apple on Thursday so there’ll be no shortage of Mag-7 headlines this week.
In terms of the last 24 hours, markets have experienced an aggressive selloff led by US tech, as there were growing questions about the sustainability of their valuations given DeepSeek’s new AI model. We’ll look at the situation in more depth shortly, but in terms of the headline moves, it meant the S&P 500 (-1.46%) and NASDAQ (-3.07%) posted their biggest declines of 2025 so far, with Nvidia down by a huge -16.97%, erasing $593bn of market cap value in a single day. In fact, it was the biggest single-day loss in a stock’s market cap ever in absolute terms. In fact Nvidia make up 8 of the top 10 on that list. Yesterday's decline was larger than the total market cap of the likes of ExxonMobil and Mastercard. The effects were clear across the board as well, with the 10yr Treasury yield falling back to its lowest level since the start of the year (-8.7bps to 4.535%), whilst investors poured into havens like the Japanese Yen and the Swiss Franc.
Fundamentally, the reason that this DeepSeek release is such an issue is because the performance of global equities since late-2022 has been powered by US tech stocks. For instance, Nvidia was up +239% in 2023, and then another +171% in 2024, surging rapidly to become the world’s most valuable company by market cap as recently as Friday (down to third yesterday). And more broadly, this rally for the S&P 500 has been an unusually narrow one in terms of the companies pushing the index higher, of the sort we haven’t seen since the dot com bubble in the late-1990s. So while that doesn’t make it unsustainable per se, it means that it’s highly vulnerable to a correction among that Magnificent 7 group.
In terms of the specific moves yesterday, chipmakers were hit hardest, with Nvidia (-16.97%) and Broadcom (-17.40%) seeing sharp moves lower. The Philadelphia Semiconductor index (-9.15%) had its worst day since March 2020, while in Europe ASML was down -7.01%. But the largest declines within the S&P 500 came for electric power companies Vistra Corp (-28.27%), GE Vernova (-21.52%) and Constellation Energy (-20.85%), all three of which had been up over +150% in the past year benefiting from expected growth in power demand for data centres. By contrast, other Mag-7 stocks saw a mixed day, with the more AI-linked Alphabet (-4.20%) and Microsoft (-2.14%) losing ground but Apple (+3.18%) rising to again become the world’s most valuable company.
But outside of US tech, it really wasn’t a bad day for equities, with the equal-weighted S&P 500 (+0.02%) little changed on the day. In fact, nearly 70% of the S&P 500 constituents moved higher, with strong rotation into more defensive sectors including consumer staples (+2.85%) and health care (+2.19%). From March 2000 to the end of that year, after the tech bubble burst, there was a huge rotation into defensives such as utilities, consumer staples and healthcare. They were up around 40% over the 9 plus months.
If you're looking for positives it was that the S&P traded in a very narrow range yesterday and closed towards the top end of it so the story didn't accelerate to the downside once the US was in. And this morning US futures are fairly calm with S&P 500 futures -0.14% and Nasdaq futures flat.
In terms of macro I don’t think it’s an exaggeration to say the launch of ChatGPT played a notable role in helping the US avoiding a recession over 2023. Despite the most aggressive Fed rate hikes in a generation, the ChatGPT’s launch coincided roughly with the bottom for equities, before the market went on a tremendous bull run, which boosted animal spirits and wealth. The S&P is up around 50% since and has helped eased financial conditions. So while it was far from the only factor, the boost helped consumers to keep spending at a time when there was a lot of downward demand pressure from other sources. See Matt Luzzetti’s piece yesterday here on the impact of equity performance on consumer spending in recent quarters and what the implications could be going forward.
In terms of other snap analysis on the situation, Adrian Cox on my team (link here) sees DeepSeek’s release challenging the dominance of large computationally intensive AI models, suggesting that hardware scaling is less critical and that AI models may become commoditised. For FX, George Saravelos argued (link here) that if this becomes a sustainable trend it would work in a dollar negative direction, and the clearest analogy is the unwinding of the dot com bubble in the early 2000s, where the equity selloff spilled over into the real economy, leading to a mild recession, and in turn a more dovish Fed. In the meantime, Henry’s a bit more sanguine (link here), and makes the point that the Mag 7 fell -18% in the space of a month last summer, before rebounding back to record highs. So we’ve seen worse in recent months, and this decline still keeps the S&P and the Mag 7 inside their post-election range.
Amid public reactions to the news, Nvidia called DeepSeek’s new model an “excellent AI advancement” that “illustrates how new models can be created” using the Test Time Scaling technique. Meanwhile, Trump commented that DeepSeek “should be a wake-up call" to the US tech industry.
We also had new comments from Trump on trade yesterday evening. When asked on the possibility of a 2.5% across-the-board tariff, hinted at by Bessant, Trump said he wanted a rate that is “much bigger”. He also threatened tariffs on a range of sectors including semiconductors, pharmaceuticals, steel, copper and aluminum, while also singling out auto imports from Canada and Mexico. Off the back of this, the US dollar index is trading +0.52% higher this morning after a fairly steady session yesterday (-0.09%).
In Asia, most of the major markets (Chinese, South Korean & Taiwanese) are closed for the Lunar New Year Holidays. In terms of specific index moves, the Nikkei (-1.02%) is underperforming but with no additional follow through to the US weakness. On the contrary, the Hang Seng (+0.14%) is inching higher in holiday-thinned trade and is set to close early today. Elsewhere, the S&P/ASX 200 (+0.08%) is fairly flat ahead of key fourth-quarter CPI data due tomorrow. Meanwhile, 10yr USTs yields have edged +1.5bps higher to 4.55%, slowly reversing some of the big rally yesterday.
Given the scale of the equity slump yesterday, investors dialled up their expectations for Fed rate cuts this year. For instance, the amount priced in by the Fed’s December meeting moved up +7.8bps on the day to 50bps, though this has reversed by around -1.5bps this morning. So markets are now pretty much in line with last month’s dot plot that penciled in 50bps for this year. It’ll be interesting to see if Chair Powell backs up that assessment at tomorrow’s press conference. That shift helped support a sizeable rally for Treasuries, with the 2yr yield (-6.9bps) down to 4.20%, whilst the 10yr yield (-8.7bps) fell to 4.535%.
Over in Europe, markets put in a relatively stronger performance yesterday, with the STOXX 600 only down -0.07% on the day. In reality, there was a fair bit of regional divergence, with sharper losses for the DAX (-0.53%), and minor gains for the FTSE 100 (+0.02%) and the IBEX 35 (+0.12%). Meanwhile for bonds, there was an advance across the continent as we approach this week’s ECB meeting, with yields on 10yr bunds (-3.7bps), OATs (-3.1bps), and BTPs (-2.3bps) all moving lower.
Looking at yesterday’s other data, Germany’s Ifo business climate indicator ticked up to 85.1 in January (vs. 84.8 expected). However, the expectations reading fell to its lowest level in a year, at 84.2 (vs. 85.0 expected). Over in the US, we also had new home sales for December, which came in at an annualised pace of 698k in December (vs. 675k expected).
To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence for January, the preliminary reading for durable goods orders in December, and the FHFA’s house price index for November. Otherwise, we’ll get French consumer confidence for January. From central banks, we’ll hear from the ECB’s Villeroy and Cipollone, and we’ll also get the ECB’s Bank Lending Survey. Finally, earnings releases include Boeing, Starbucks and General Motors.