Investing.com – US stock index futures slumped Monday, with the tech sector hard hit as investors weighed the implications of competition from Chinese AI startup DeepSeek on richly valued sector.
At 05:53 ET (10:53 GMT), Dow Jones Futures slipped 460 points, or 1%, S&P 500 Futures dropped 178 points, or 2.9%, and Nasdaq 100 Futures slumped 1095 points, or 5%. CBOE Volatility Index rose 19% to 19.45.
Sentiment in the tech sector has been hit hard Monday, prompting investors to take profits after the benchmark S&P 500 hit a record high last week.
China’s DeepSeek pressures tech sector
China’s AI startup DeepSeek has unveiled its latest model, R1, which is claimed to demonstrate performance comparable to leading US models like OpenAI’s ChatGPT but at a significantly reduced cost.
This advancement poses a competitive threat to established players in the AI hardware space, notably Nvidia (NASDAQ:NVDA), which has seen its stock decline around 10% in premarket trading.
“The entire US equity market is resting on the backs of mega-cap tech stocks, which in turn are being propelled by AI optimism – while DeepSeek’s claims have attracted a fair amount of skepticism, the company could represent a fatal thread being pulled from the edifice of AI enthusiasm,” analysts at Vital Knowledge said in a note to clients.
Tariffs threat remains live
Confidence had also been hit by President Donald Trump’s threat of tariffs on Colombia after the Latin American country refused to allow two US repatriation flights carrying deported individuals to land, a directive attributed to Colombia’s President Gustavo Petro.
While Colombia quickly relented, this incident has reminded investors that the threat the Trump administration will levy economic sanctions on economic rivals remains live.
Trump had earlier announced that tariffs on Mexico, Canada, China, and the European Union could be announced on Feb. 1.
Earnings ramp up
On the corporate front, attention this week will likely center on quarterly results from a host of influential tech companies this week.
Instagram-owner Meta Platforms (NASDAQ:META), iPhone-maker Apple (NASDAQ:AAPL), software titan Microsoft (NASDAQ:MSFT) and Elon Musk-led electric carmaker Tesla (NASDAQ:TSLA) are all due to report.
Of the 16% of S&P 500 companies having reported fourth-quarter results, 80% have posted a positive earnings per share surprise and 62% have reported a positive revenue surprise, according to FactSet data published Friday.
Fed meeting, inflation data in spotlight
Also of interest will the Federal Reserve’s upcoming policy meeting due later in the week.
The Fed is widely tipped to keep borrowing costs unchanged, following a string of reductions late last year that left the all-important benchmark rate at a range of 4.25% to 4.50%.
But investors will be keen for officials to give any sense of when they might resume cutting rates, given price growth remains above the Fed’s 2% target.
Fed’s preferred gauge of inflation – PCE price index data, and advance GDP estimates for the fourth quarter are also due this week.
Crude stabilizes after previous losses
Oil prices stabilized Monday, after last week’s losses on the back of President Trump’s call for the Organization of the Petroleum Exporting Countries to lower crude prices.
By 05:15 ET, the US crude futures (WTI) climbed 0.2% to $74.86 a barrel, while the Brent contract rose by 0.2% to $77.69 per barrel.
The crude market slumped last week after Trump declared a national emergency and called for a sharp increase in US energy output, while also urging the OPEC producer group to bring down crude prices.
Oil markets were also hit by the weak PMI data from China, the world’s top oil importer.
