The past week has been nothing short of eventful, featuring major developments across global markets. From the emergence of China’s AI powerhouse DeepSeek to earnings reports from U.S. tech giants and crucial central bank meetings, investors had plenty to digest. Let’s take a closer look at how these events shaped market sentiment and economic outlooks.
On Monday morning, news broke that China’s AI company DeepSeek had emerged with its R1 model, which demonstrated impressive AI benchmark performance. In some cases, it even outperformed competing models from OpenAI, Meta, and Google. What makes this particularly significant is its efficiency—DeepSeek reportedly trained the model for less than $6 million, compared to OpenAI’s GPT-4, which had total training costs of up to $100 million. Given this, it’s no surprise that DeepSeek’s emergence sent shockwaves through the stock market, causing major tech stocks to drop in value. The S&P 500 plunged 1.46%, with Nvidia taking the biggest hit, falling 16.97% and erasing nearly $600 billion in market cap.
However, in the following days, the S&P 500 rebounded to all-time high levels, supported by solid earnings reports. Microsoft and Meta both exceeded earnings expectations, while Tesla reassured investors that it expects to return to positive sales growth despite missing Q4 revenue estimates. On the next day, Apple released its earnings after the closing bell, reporting a marginal beat on both earnings and sales. While iPhone sales were disappointing, and China revenues were weak, strong growth in Apple’s services division offset these concerns. As a result, Apple’s stock rose nearly 3%, reclaiming its title as the world’s most valuable company, overtaking Nvidia.
S&P 500 Weekly Performance
Source: Bloomberg, InterCapital
Turning to central banks, the Federal Open Market Committee (FOMC) meeting on Wednesday went as expected, with the Fed keeping the federal funds rate unchanged at 4.25–4.50%. However, the accompanying statement had a hawkish tone, notably omitting the phrase about “inflation making progress toward the 2% objective.” Fed Chair Jerome Powell later downplayed this, stating that “the economy is in a good place.” Additionally, he dismissed the likelihood of a rate cut in March, emphasizing that “the Fed doesn’t need to hurry to adjust the policy stance, as it is still meaningfully restrictive.” Powell also largely avoided speculating on the potential implications of a new Trump administration, citing uncertainty around tariffs, immigration, fiscal policy, and regulations, concluding that the Fed will simply have to “wait and see.”
In Europe, the European Central Bank (ECB) delivered a 25-basis-point rate cut as expected, bringing the deposit rate down to 2.75%. Looking ahead, further cuts are anticipated, though ECB President Christine Lagarde refrained from providing a clear timeline, stating that “it would be premature at this point to talk about the point of stopping.” Despite this, markets are expecting a series of 25-basis-point cuts in the first half of 2025.
In the bond market, German Bund yields started the week slightly lower due to the equity market turmoil. However, after the Fed and ECB meetings, Bund yields began to rise moderately. On Friday, inflation data from Germany and France was released. Germany recorded a 2.3% year-over-year inflation rate (vs. 2.6% expected), while France reported 1.4% (vs. 1.5% expected), helping push Bund yields to the 132.50 level.
Bund weekly performance (January 2025)
Source: Bloomberg, InterCapital
