Tech Tumbles: Nasdaq Falls as AI Disrupts Markets

The major markets had mixed results last week, with the Nasdaq taking the biggest hit, down 1.64%. Looking closer at domestic markets, the biggest pullback came from the Information Technology sector. Since technology makes up nearly 60% of the Nasdaq, this drop had a big impact on the overall index. The main news driving the market was an announcement from China over the weekend about a new AI platform called DeepSeek. DeepSeek is designed to compete with AI models like OpenAI’s ChatGPT. What makes it stand out is that it was developed at a fraction of the cost—around $5.5 million , compared to OpenAI’s $100 million.  

For many investors, the key question is whether DeepSeek can truly compete with other AI models, but at such a lower cost. If it can, it could change the way the tech industry operates, using far less processing power to drive the same results.  

This news led to a sharp drop in NVIDIA stock on Monday, with the company’s shares falling 17%. While the stock did recover a bit on Tuesday, it still ended the week down around 16%. Since the S&P 500 is weighted by market capitalization, a big drop in a major stock like NVIDIA, which is the third largest company in the index, has a large impact on the overall market. As a result, the S&P 500 fell about 1.5% on Monday and set the tone for the rest of the week. 

 

Major Markets		YTD as of 01/31/2025
	Nasdaq
	Dow Jones Industrial
	S&P 500
	MSCI World
	MSCI EM
	Russell 2000
	Bar US Agg Bnd

S&P Sectors		YTD as of 01/31/2025
	Comm. Services
	Cons. Discretionary
	Cons. Staples
	Energy
	Financials
	Health Care
	Industrials
	Info. Technology
	Materials
	Real Estate
	Utilities
		Agent/Broker Dealer Use Only

Midweek, the Federal Open Market Committee (FOMC) held its first meeting of the year and decided to keep interest rates steady between 4.25% and 4.50%. While most people expected the pause in rate cuts, the Fed also removed a key part of its statement. Previously, they had said inflation was making progress toward their 2% target . The removal of this language suggested that the chance of rate cuts anytime soon has diminished. In fact, the Fed’s outlook now even suggests the possibility of a rate hike in 2026. 

https://www.businessinsider.com/deepseek-number-one-app-apple-store-openai-chatgpt-2025-1 https://www.wired.com/story/openai-ceo-sam-altman-the-age-of-giant-ai-models-is-already-over/ https://www.federalreserve.gov/monetarypolicy/files/monetary20241218a1.pdf 

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