Forex Analysis & Reviews: 27.01.2025

27.01.2025 11:17 AM

S&P 500 and NASDAQ plummet in early futures trading on Monday

The US stock market took a sharp dive at the opening of Monday's futures trading. Following reports that Trump may impose trade tariffs as early as February 1, market participants are unnerved. S&P 500 futures dropped more than 2.0% and continue to lose value. Meanwhile, the tech-heavy NASDAQ plunged by 3.0%, driven by panic in the AI sector. The industrial Dow Jones shed around 1.5%.

Global equities also declined after the Chinese startup DeepSeek raised concerns about US dominance in artificial intelligence. Besides, escalating tensions between the US and Colombia worsened fears over tariffs being used as a geopolitical weapon. European and US stock futures dropped, while Asian stocks gained. Market attention was focused on the rally of Chinese tech companies linked to DeepSeek, whose business model, according to some analysts, is more cost-effective and could challenge industry leaders like Nvidia Corp.

All eyes are now on how traders will respond to this latest development from China. While it remains to be seen if DeepSeek can establish itself as a viable, cost-efficient alternative in the long term, initial concerns revolve around whether the pricing power of US tech giants could be under threat.

The tech innovation market has always been full of surprises, and DeepSeek's recent presentation has stirred both worry and intrigue among traders. Analysts predict that the success of this project could shift the balance of power in the global tech arena. If DeepSeek truly delivers high-quality solutions at lower costs, it could force US companies to revise their strategies, particularly with regard to pricing competitiveness. However, it's important to remember the significant resources held by US tech giants. These companies have firmly established themselves in the market with a broader customer base and substantial investments in R&D. DeepSeek's potential threat may be underestimated if market and consumer reactions, which might resist price-driven changes, are not factored in.

Market impact of DeepSeek news

According to Bloomberg, the Chinese AI company DeepSeek leveraged minimal costs to develop a product capable of competing with OpenAI, triggering bearish sentiment for Nvidia ($NVDA) shares and pulling down other AI-related stocks. The immediate stock reactions to the DeepSeek news are as follows:

Nvidia (NVDA): -5%

Broadcom (AVGO): -5%

Arm Holdings (ARM): -5%

Qualcomm (QCOM): -3%

AMD: -2.5%

Intel (INTC): -2%

Broader market caution

Investors are becoming more cautious, particularly in light of Trump's recent success in pressuring Colombia to meet his demands, which has revived fears that he may readily deploy tariffs to achieve other political ambitions. This could derail last week's global market recovery, which had calmed fears of an imminent global trade war after tariffs on goods from Mexico, Canada, and China were temporarily avoided.

Federal Reserve's interest rate decision looms

Later this week, the Federal Reserve is expected to keep interest rates steady at the conclusion of its two-day policy meeting on Wednesday. Amid robust demand and persistent inflation, officials are likely to pause for the first time since the start of the rate-cutting cycle in September.

Technical outlook for S&P 500

From a technical standpoint, demand for the S&P 500 remains buoyant. Today, buyers' main goal will be to overcome the nearest resistance at $6,000. Breaking this level will support the ongoing uptrend and pave the way for a rally to $6,014. Securing control over $6,027 is also critical for strengthening the buyers' position.

In case of a downward movement due to fading risk appetite, buyers must take the lead at about $5,987. A breakdown of this level could quickly push the trading instrument back to $5,967, opening the path to $5,951.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.