Markets Taunted by DeepSeek, Fed Pause, and Trade Tensions
by Sequoia Financial Group
by Sequoia Financial Group
Market volatility surged as China’s DeepSeek AI launch triggered a tech selloff, but a mid-week rebound, driven by strong earnings helped stabilize equities. Meanwhile, the Fed held rates steady amid inflation concerns, and Trump’s new tariffs on key trade partners fueled geopolitical tensions.
On Monday, the tech-heavy NASDAQ Composite dropped more than 3% on concerns surrounding the launch of China’s DeepSeek AI startup.[1] The selloff was particularly harsh for AI-related stocks, with Nvidia experiencing its largest single-day loss of market value, falling nearly 17% and losing close to $600 billion in market capitalization.[2] However, the market showed resilience on Tuesday, with the S&P 500 rising 0.9% and the NASDAQ 100 jumping 1.6% as tech stocks, including Nvidia, staged a recovery.[3]
Mid-week saw a further rebound, with the S&P 500 driven by strong earnings the NASDAQ offsetting earlier losses. Meta exceeded expectations on both revenue and earnings, while Microsoft shares declined following a disappointing revenue forecast. Meanwhile, Tesla brushed off an earnings and revenue miss.[4][5][6]
The U.S. economy continued to grow in late 2024, though fourth-quarter GDP slightly missed expectations, expanding at an annual rate of 2.3%. GDP grew 2.8% for the full year, just below 2023’s 2.9% rate.[7]
The Federal Reserve kept its benchmark interest rate Wednesday, maintaining the current range of 4.25-4.5%.[8] The decision pauses its recent easing cycle after three consecutive rate cuts totaling one percentage point since September 2024. The unchanged interest rate reflects a more cautious approach as the Fed assesses inflation trends and potential policy moves under President Donald Trump.[9]
The post-meeting statement maintained an optimistic view of the labor market, highlighting that the unemployment rate has stabilized at a low level and that labor market conditions remain solid. However, Fed officials took a more cautious tone on inflation, removing a key reference from December’s statement that inflation “has made progress toward” the 2% goal, instead stating that it “remains somewhat elevated.” Fed Chairman Powell also emphasized that the labor market has not been a significant source of inflationary pressure, stating that the Fed would need to see “real progress on inflation or some weakness in the labor market” before considering policy adjustments. However, inflation remains a concern, with headline and core CPI ending the year above the Fed’s 2% target, potentially limiting the central bank’s ability to implement further rate cuts in 2025.[10]
According to Friday’s Personal Consumption Expenditures Index (PCE) report, inflation remains above the Federal Reserve’s 2% target. PCE inflation rose to 2.6% annually in December, up from 2.4% in November, while core PCE, excluding food and energy, held steady at 2.8%.[11]
On Saturday, President Donald Trump signed an executive order imposing tariffs on imports from Canada, Mexico, and China. The order includes a 25% tariff on Mexican and most Canadian goods, while Canadian energy products and Chinese goods face a 10% tariff. Canada and Mexico vowed retaliation, with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum threatening counter-tariffs. Canada’s tariffs would take effect Tuesday, aligning with U.S. measures. Meanwhile, China’s Ministry of Commerce announced plans to file a WTO lawsuit and implement countermeasures to protect its interests.[12]
Note: Returns are annualized for periods of greater than one year. Returns are cumulative for periods of less than one year.
[1] https://www.barrons.com/livecoverage/stock-market-today-012725
[2] https://www.cnbc.com/2025/01/27/stock-market-today-live-updates.html
[3] https://www.bloomberg.com/news/articles/2025-01-28/stock-market-today-dow-s-p-live-updates
[4] https://www.reuters.com/technology/tech-stock-selloff-deepens-deepseek-triggers-ai-rethink-2025-01-28/
[5] https://www.bloomberg.com/news/articles/2025-01-27/stock-market-today-dow-s-p-live-updates
[6] https://www.barrons.com/articles/stock-market-movers-today-94bf4206
[7] https://www.nytimes.com/2025/01/30/business/economy/economy-gdp-q4.html
[8] https://www.forbes.com/sites/dereksaul/2025/01/29/federal-reserve-pauses-interest-rate-cuts-first-meeting-without-a-cut-since-july/
[9] https://apnews.com/article/inflation-economy-jobs-federal-reserve-7f174d13518f7ab8a49fa284e869dab9
[10] https://www.cnbc.com/2025/01/29/fed-rate-decision-january-2025.html
[11] https://www.cnbc.com/2025/01/31/pce-inflation-december-2024-.html
[12] https://www.nbcnews.com/politics/donald-trump/live-blog/trump-china-canada-mexico-tariffs-live-updates-rcna190144
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Markets Taunted by DeepSeek, Fed Pause, and Trade Tensions