Stocks experienced a significant decline on Monday, continuing the downturn that began last Friday. The Nasdaq, heavily weighted with tech stocks, led the fall with a notable drop.
Despite recovering slightly from the day's lowest levels, major indexes remain deeply negative. The Nasdaq has fallen 553.33 points, or 2.8%, to 19,400.97, while the S&P 500 has decreased by 104.36 points, or 1.7%, to 5,996.88. Conversely, the Dow shows a less severe decline, slipping 69.54 points, or 0.2%, to 44,354.71.
The market's downturn is largely fueled by significant weakness in technology stocks. Leading this trend, Nvidia (NVDA) has plummeted by 14.4%. This drop follows the rise of DeepSeek's AI Assistant, a Chinese startup's product that has overtaken ChatGPT to become the top-rated free app in Apple’s U.S. App Store.
DeepSeek's success raises questions about the massive investments in AI by major Silicon Valley firms and the long-term status of the U.S. in the artificial intelligence arena. According to ING, "This technology could potentially revolutionize the industry, prompting scrutiny over the substantial financial commitments made by traditional tech giants, or the so-called Magnificent 7, towards AI development."
Nvidia's substantial drop has also negatively impacted semiconductor stocks, with the Philadelphia Semiconductor Index retracting by 7.9%. Networking stocks are similarly suffering, evidenced by the NYSE Arca Networking Index's 6.5% decline.
Beyond the tech sector, utilities, natural gas, and gold stocks are likewise under pressure, whereas pharmaceutical and housing stocks are seeing notable gains.
Concerns regarding interest rates are also affecting the market as anticipation builds for the Federal Reserve's monetary policy meeting next week. While it's widely expected that the Fed will maintain current interest rates, traders will be closely analyzing the accompanying statement for future rate projections.
Recent economic indicators have sparked worries that the Fed may keep rates unchanged for an extended period. Nevertheless, many economists anticipate that the central bank will resume rate cuts at some point in the first half of the year. Currently, CME Group's FedWatch Tool estimates a 78% probability of a rate reduction by at least a quarter point following the Fed's June meeting.
Internationally, Asia-Pacific stock markets exhibited mixed results on Monday. Japan's Nikkei 225 Index fell by 0.9%, while Hong Kong's Hang Seng Index increased by 0.7%. European markets also displayed mixed outcomes, with Germany's DAX Index down 0.3%, France's CAC 40 Index slightly up, and the U.K.'s FTSE 100 Index advancing by 0.1%.
In the bond market, there was a strong upward movement in treasuries amid the Wall Street sell-off. Consequently, the benchmark ten-year note's yield, which inversely relates to its price, decreased by 6.8 basis points to 4.555%.
