U.S. stock markets closed mostly in the red on Monday, with technology shares experiencing significant declines due to persistent selling throughout the trading session.
Among the major indices, the Dow Jones Industrial Average rose by 289.33 points, or 0.65%, ending at 44,713.58. Conversely, the S&P 500 fell by 88.96 points, or 1.46%, to close at 6,012.28, while the Nasdaq Composite saw a steeper drop, losing 612.47 points, or 3.07%, to settle at 19,341.83.
The slide in technology stocks was driven by concerns over earnings, following the rise of China's low-cost startup, DeepSeek, which has emerged as a potent player in the AI field. DeepSeek's AI Assistant surpassed ChatGPT on Apple's App Store, leading to fears about U.S. AI leaders potentially losing their edge.
DeepSeek's rise casts doubt on Silicon Valley's substantial investments in artificial intelligence and the long-term sustainability of the U.S. technology leadership in this domain.
"This technology could be transformative, and questions are being raised about the massive investments the traditional tech giants, often referred to as the 'Magnificent 7,' are making in AI development," according to ING.
Shares in Nvidia plummeted nearly 17%, while Micron fell 11.7%. AMD finished the day down by 6.4%, and Cisco decreased by 5%. Other tech heavyweights like Alphabet, Intel, Tesla, and Microsoft also saw significant declines.
In contrast, companies such as Pepsico, Apple, Amgen, Costco, Meta Platforms, Microchip, AstraZeneca, Starbucks, PayPal, and Texas Instruments recorded moderate to substantial gains.
Investor anxiety over the future of interest rates weighed heavily on Wall Street, with the Federal Reserve's monetary policy meeting looming. Although the Fed is anticipated to maintain current interest rates, traders will scrutinize the accompanying statement for any insights into future rate paths.
Recent economic indicators have stoked fears the Fed may keep rates unchanged for an extended period, yet many economists still anticipate a rate cut by mid-year.
The CME Group's FedWatch Tool currently suggests a 78% probability of rates being lowered by at least a quarter of a percentage point after the Fed's June meeting.
On the economic landscape, the Commerce Department issued a report revealing that U.S. new home sales surged significantly in December. The report highlighted a 3.6% increase to an annual rate of 698,000, following a revised rise of 9.6% to 674,000 in November. Economists had predicted a modest rise of 0.9% to an annual rate of 670,000 compared to the originally reported 664,000 for the prior month.
In overseas markets, Asian equities closed largely lower on Monday, as investors responded to lackluster Chinese data and awaited pivotal interest rate decisions from the U.S. Federal Reserve and the European Central Bank for direction.
European markets saw a broad decline, particularly in technology stocks, as caution prevailed ahead of interest rate announcements from the Federal Reserve and the European Central Bank.
