The S&P 500 and Nasdaq recovered some ground on Tuesday after a sell-off sparked by the emergence of Chinese startup DeepSeek. The tech-heavy Nasdaq rose more than 2%, following a 4.9% loss on Monday. The Dow Jones Industrial Average surged 2.03% to 19,733.59.
Nvidia was the focus of Tuesday’s trading, with the major averages moving in step with the AI bull market leader’s intraday fluctuations. The stock closed around its highs of the day after rising nearly 9%. In the prior session, Nvidia lost 17%, or almost $600 billion in market value.
The DeepSeek AI threat came to a head on Monday following social media buzz over the weekend. The Chinese startup unveiled a free open-source large language model last month that it says took less than $6 million to build. Thomas Martin of Globalt Investments says investors should still watch their backs.
“I don’t think we’re in the clear necessarily. I think that we’re in a bit of uncertainty as people try to sort this out,” the senior portfolio manager told reporters. Investors’ attention is turning toward corporate earnings due this week.
DeepSeek AI threat impacts markets
A slate of “Magnificent Seven” companies will report in the coming days. The Federal Reserve will also make its latest decision on interest rates on Wednesday.
The three indexes closed higher on Tuesday. The tech-heavy Nasdaq gained 2.03% to close at 19,733.59, and the broad market S&P 500 rose 0.92% to close at 6,067.70. Meanwhile, the blue-chip Dow climbed 136.77 points, or 0.31%, to settle at 44,850.35.
Artificial intelligence power plays are off their highs for the day, but the stocks have been trying to claw back some ground that was lost in Monday’s session. Shares of Vistra have been negative for most of the day and were recently down about 3%. This week’s moves in Nvidia highlight the downside risk of leveraged, single-stock exchange-traded funds (ETFs).
To illustrate the point, Tuesday’s 6% gain in Nvidia resulted in about a 12% rebound for the leveraged ETF, but it is still down 26% since Friday, compared to 12% for the underlying stock. According to Gene Munster, managing partner at Deepwater Asset Management, there are some near-term “chinks in the armor” in “Magnificent Seven” stocks. Munster said Tuesday on “Money Movers” that after the DeepSeek shake-out, he has shifted to smaller technology companies with a market cap of under $500 billion as a point of diversification.
Analysts are lowering price targets for Eli Lilly ahead of the company’s quarterly results on February 6. The pharmaceutical giant’s performance will be closely watched, especially after the significant developments with its diabetes drug, Mounjaro, and advancements in obesity treatments.
