U.S. Stocks Mixed as Tech Sector Faces DeepSeek Competition

U.S. stocks had a mixed session on Monday, with gains in Telecoms, Healthcare, and Consumer Services offset by losses in Technology, Utilities, and Industrials. The Nasdaq fell 3.1%, dragged down by major technology stocks, while the S&P 500 dropped 1.5%, and the Dow Jones Industrial Average edged up 0.7%.

Nvidia (NASDAQ:NVDA) suffered a significant 17% decline, with other tech names like AMD, Broadcom, and Microsoft also posting steep losses. The sell-off was spurred by competition concerns following the launch of a cost-efficient AI model by China’s DeepSeek, which raised fears of U.S. firms losing market share, particularly in AI hardware.

DeepSeek’s new AI model, which operates efficiently on less advanced hardware, has intensified global competition and questioned the high valuations of U.S. AI-driven companies like Nvidia. Analysts at Wedbush and Bernstein described the market reaction as an overreaction, emphasizing the long-term growth potential of AI investments. They suggested that innovations like DeepSeek’s could ultimately enhance overall demand for computing capacity, benefiting U.S. firms. Despite these reassurances, the broader semiconductor index fell 9.2%, its worst single-day performance since March 2020. Data center operators, including Digital Realty (-8.7%), and energy suppliers like Vistra (-28.3%) were also hit hard by concerns about AI-related demand disruptions.

The Q4 earnings season started strongly, with 82% of S&P 500 companies surpassing EPS estimates and 63% beating revenue expectations. However, downward revisions to 2025 consensus EPS forecasts continued, albeit at a modest pace, according to RBC Capital Markets. This week is pivotal for earnings, with major companies like Boeing, Meta, Microsoft, and Tesla set to report. Despite the tech sector's turbulence, the broader market showed resilience, supported by expectations of stable monetary policy and easing inflation pressures.

Stifel analysts warned that stagflation risks could push the S&P 500 down to 5,500 in 2025. They outlined three key concerns: the unlikely smooth transition from growth-led to value-led market leadership, persistent inflation (Core PCE inflation forecasted at 2.7%-2.9%), and elevated Treasury yields coupled with a flattening yield curve. These factors, combined, may lead to a mild stagflation scenario and a 10% market correction in the latter half of 2025. Stifel predicts Defensive Value sectors, including Utilities, Pharmaceuticals, and Biotech, will outperform Big Tech and Cyclical Growth stocks during this period.

Investor attention remains fixed on the Federal Reserve’s policy meeting, where borrowing costs are expected to stay unchanged at 4.25%-4.50%. The Fed’s inflation gauge, the PCE price index, and advance Q4 GDP data will provide critical insights into the economic outlook. Goldman Sachs highlighted parallels to the 2019 trade war, emphasizing the potential for tariff-induced inflation to shape rate decisions.

Optimism over AI-driven market growth continues to underpin equity performance, though stretched valuations and rising competition from disruptive players like DeepSeek have tempered enthusiasm. Analysts noted the U.S. market's heavy reliance on mega-cap tech stocks, making it particularly vulnerable to geopolitical and technological disruptions. Earnings reports and upcoming economic data, including GDP growth and PCE inflation figures, are expected to guide market dynamics and test the durability of the ongoing rally in equities.

Data for Technical Analysis (1H) CFD US 500 [S&P 500]

Resistance : : 6016.1, 6019.9, 6026.2      

Support : 6003.5, 5999.7, 5993.4                       

1H Outlook  

Source: TradingView

Buy/Long 1 If the support at the price range 5993.5 - 6003.5 is touched, but the support at 6003.5 cannot be broken, the TP may be set around 6018.9 and the SL around 5988.5, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 6016.1 - 6026.1, TP may be set around 6036.0 and SL around 5999.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 6016.1 - 6026.1 is touched, but the resistance at 6016.1 cannot be broken, the TP may be set around 6002.5 and the SL around 6031.1, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 5993.5 - 6003.5, TP may be set around 5975.0 and SL around 6021.0, or up to the risk appetite.       

Pivot Points Jan 28, 2025 03:24AM GMT