Market Update | January 27st - January 31th

The What

This week started off with a bang as the release of a cheaper AI model from China’s DeepSeek sent panic through the US stock market. On Wednesday, 4 of the 7 biggest tech companies, known as the "Magnificent 7," reported earnings, which were mixed but mostly positive. Also on Wednesday, the Fed announced they would not be cutting rates, which was expected, but was only made official on Wednesday. Finally, on Friday, the White House announced that a new tariff policy will be going into effect, causing yet another market drop. The official policy is a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. It will be going into effect on Tuesday, February 4th, which will have significant implications for the market and will certainly be worth monitoring. Let's see how these events affected the market.

First, let's look at the S&P 500, made up of the 500 leading publicly traded companies in the United States. After two consecutive weeks of gains, the index pulled back 1%. The Dow Jones Industrial Average, made up of 30 of the most actively traded companies, managed a slight increase of 0.27%, showing some resilience despite broader market concerns. Finally, the Nasdaq Composite, made up of 2,500 stocks heavily weighted toward the technology sector, declined 1.64%.

Next, let's look at some commodity performance this week. Gold prices saw a slight increase, with the SPDR Gold Shares ETF (GLD) rising 1.14%. Meanwhile, oil prices dipped slightly, with the United States Oil Fund (USO) decreasing 1.98%.

The Why

This week started off with a bang as the release of a cheaper AI model from China’s DeepSeek sent panic through the US stock market Monday. NVDIA—who dominates the advanced chip production market—saw its market value fall by about $590 billion on the 27th. Over the past year, NVIDIA has been right at the center of the AI boom. Think of NVIDIA like the top shovel manufacturer during a gold rush—every prospector (AI company) needs its tools (chips) to dig for gold (train AI models). You get the gist.

So, investors had been betting heavily on NVIDIA’s continued growth, with the stock climbing on expectations that AI demand would remain super high and that competitors were very very far behind NVDIA. However, last week’s developments flipped the script completely. The release of DeepSeek R1, a cheaper AI model from China, raised concerns that AI development costs might be dropping faster than expected. If AI companies can train powerful models more efficiently and with less reliance on NVIDIA’s cutting-edge chips, the company’s long-term pricing power and dominance could be at risk.

This sudden shift in perception is like if that top shovel manufacturer from earlier were to find out that miners had suddenly discovered a way to dig for gold with way cheaper tools. Now, the shovels that at one point were perceived as indispensable might not actually be as valuable, and the company's dominance in the market could be at risk. It's important to realize that the fear isn’t just about immediate revenue, it’s about whether NVIDIA’s competitive advantage is as strong as investors previously thought.

On Wednesday, earnings reports—quarterly financial statements that show a company’s revenue, profit, expenses, and overall performance—from four of the "Magnificent 7" were released, and results were mixed. Microsoft and Meta beat earnings expectations on the 29th, while Tesla missed. The next day, Apple also beat estimates. Also on Wednesday, the Federal Reserve confirmed that interest rates would remain unchanged. While this was widely expected, so there were no big effects on the market.

Finally, on Friday, the White House’s announcement of a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China added another layer of uncertainty. Trump had been preaching tariffs for his entire campaign, so investors knew they were coming, they just didn't know exactly when. Remember, as taxes on imports, tariffs work like tolls on a highway—when they increase, the cost of transportation rises, potentially slowing down trade. The market effect is that companies who rely on international supply chains now face higher costs, which could lead to price increases or reduced earnings, causing the market to pull back.

What’s Next

Next week is a huge one. At the time of writing this, Trump has just announced that he will be lifting tariffs on Canada after lifting Mexico's earlier this afternoon. Look out for earnings reports from Amazon and Alphabet, as well as more developments with Trump's tariffs.

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