Market Monitor January 27th

Highlights

The U.S. tech exchange Nasdaq fell 3.1% on Monday due to concerns over AI investments, following reports that the Chinese AI bot DeepSeek could compete with advanced chatbots like ChatGPT using less computing power.

This sparked panic among investors, who feared that the billions invested by tech companies in AI computing might not yield the expected advantages. Microsoft and Alphabet lost 2-4%, while Apple rose 3.3%. Nvidia took a hit of 16.9%, amounting to a loss of $589 billion in market value, the largest single-day loss ever.

Analysts, however, question the reliability of DeepSeek's reported figures, with some suggesting more chips were used than claimed. The S&P500 dropped 1.5%, but the Dow Jones closed 0.7% higher.

Major U.S. Indices Performance

• S&P 500 (SPY) closed at 599.37 (-1.4%), experiencing a notable decline. However, on a monthly basis, the index remains up 12.47% and continues its longer-term uptrend.

• Nasdaq 100 (QQQ) dropped 2.9% to 514.21, marking the biggest decline among the major indices. Despite this setback, it remains up 14.59% over the past three months and 19.86% over the past year.

• Russell 2000 (IWM), representing small-cap stocks, declined 0.96% to 226.5, showing relative resilience compared to the Nasdaq but still under pressure.

Sector Performance - A Clear Defensive Rotation

The weekly sector performance tells a clear story: defensive sectors outperformed, while risk-on sectors struggled.

Top Performers:

• Health Care and Communication Services led the market, showing solid gains.
• Financials and Consumer Discretionary also posted modest advances.

Worst Performers:

• Energy was the biggest loser, suffering significant losses.
• Information Technology, Industrials, and Utilities also saw declines, with Tech underperforming sharply.
• Materials and Real Estate showed relative weakness as well.

All info available on our Sector Performance page

Market Breadth Indicators - More Decliners Than Advancers

Market breadth signals a mixed picture:

• Advance-Decline Ratio: 46% of stocks advanced, while 52.2% declined, indicating more losers than winners.
• 4% Up vs. 4% Down Moves: 2.9% of stocks gained over 4%, while 9.8% declined by more than 4%, showing broader market weakness.
• 67.9% of stocks remain above their 20-day moving average, suggesting short-term momentum is still intact despite today's decline.
• 48.3% are above the 50-day moving average, showing some weakening in intermediate-term strength.
• 53.4% above the 100-day MA and 57.4% above the 200-day MA indicate a generally positive long-term trend.

All info available on our Market Monitor page

Conclusion

This was a risk-off market day, with defensive sectors like Health Care and Communication Services holding up, while Energy, Technology, and Industrials struggled. Market breadth indicators show more declining stocks than advancing ones, confirming short-term weakness. However, longer-term trends remain positive, suggesting this may be a pullback rather than a structural shift in market direction.

A major factor behind the sharp drop in Information Technology stocks was high volatility in mega-cap tech names like Nvidia (NVDA), Microsoft (MSFT), and Meta (META). These stocks saw wild price swings following news about DeepSeek AI, a new AI model that is reportedly advancing rapidly and intensifying competition in the AI space. This led to uncertainty among investors, sparking profit-taking in some of the biggest AI-driven tech names.