AI Disruptions Shake Wall Street Strongly: Wall Street faced a tough start to the week
amid fears that the low-cost AI model developed by China’s startup “DeepSeek.”
could make it difficult to justify the high valuations of tech stocks that have supported the market recently.

Contents

Significant Global Stock Declines

Shift Toward Safe-Haven Assets

Fundamental Changes in Market Narrative

Major Losses and Transformations

Hope in Earnings Announcements

Significant Global Stock Declines and Major Impacts on Tech Companies

From New York to London to Tokyo, stocks suffered heavy losses, with the S&P 500 dropping 1.7%,
and the Nasdaq 100 falling 3.2%. The closely watched Semiconductor Index also plunged 9.5%,
marking its steepest drop since March 2020.

NVIDIA, a key beneficiary of the AI boom, saw its stock tumble 17%,
marking the most significant single-day market cap loss in history.

With significant tech stocks collapsing, the U.S. stock market appeared poised
for its worst day since the Federal Reserve’s latest decision, which had already rattled traders.

Shift Toward Safe-Haven Assets Amid Market Turmoil

Investors flocked to safe-haven assets such as consumer staples and healthcare stocks in this volatile environment.
U.S. Treasury bonds also rose, driving yields to their lowest levels this year.
Safe-haven currencies like the Japanese yen and Swiss franc also gained, while cryptocurrencies faced intense pressure.

Chris Larkin of E*TRADE, a subsidiary of Morgan Stanley, remarked,
“What was already expected to be a significant week for the market has become even more
crucial due to disruptions in the AI sector,
making the tech giant’s earnings announcements this week critical for shaping market sentiment.”

Fundamental Changes in Market Narrative

Monday’s declines highlighted cracks in the market narrative that has prevailed since Donald Trump’s re-election.
This narrative expected a rally led by tech stocks, fueled by promises of deregulation,
tax cuts, and government investment in AI.

Treasury yields fell sharply as investors turned to safe-haven assets temporarily,
setting aside inflation fears tied to current administration policies.

The depth of losses in U.S. assets was tied to the significant weighting of AI-driven companies in key indices.
Companies like NVIDIA, Apple, Microsoft, Amazon, Meta, and Alphabet collectively
account for about 40% of the Nasdaq 100 and nearly 30% of the S&P 500,
making them highly vulnerable to significant declines.

Steve Sosnick of Interactive Brokers noted,
“The market’s reaction to DeepSeek suggests that some of the key assumptions driving
AI trades and major indices are now being reassessed.”

He added, “Part of today’s response stems from complacency overtaking the market.”

Major Losses and Transformations

The Dow Jones Industrial Average rose 0.4%, while the “Magnificent Seven” (major tech companies)
dropped 3.2%. The Russell 2000 small-cap index declined 1.3%,
while the Wall Street “fear index” (VIX) rose to its highest level since mid-December, reaching nearly 20 points.

The 10-year U.S. Treasury bonds yield fell by 10 basis points to 4.53%,
while the Bloomberg Dollar Spot Index edged up 0.1%. Bitcoin dropped 3.9%, trading at $100,537.23.

Hope in Earnings Announcements

Attention now turns to earnings results from major tech companies like Microsoft and Apple,
which could help restore confidence in the “Magnificent Seven.”

However, with high valuations, this earnings season may struggle to meet elevated expectations,
adding further pressure to the market.

Nevertheless, strategists remain optimistic that AI investment could unlock new revenue streams across the economy,
supporting a positive long-term outlook for the tech sector.

AI Disruptions Shake Wall Street Strongly

AI Disruptions Shake Wall Street Strongly

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