The Market Brief
Hey team. Futures are experiencing one of the most emotional overnight sessions in recent history due to the new Low-Cost Chinese AI Model, sparking concerns among tech investors.
Let’s see what’s next for the market!
Impact Snapshot
Low-Cost Chinese AI Model Worries Tech Investors
The new model is cost-effective and runs on reduced-capability chips
Macro Viewpoint
Futures tumbled on Monday as the surging popularity of a low-cost Chinese artificial intelligence model sparked a selloff in tech heavy companies that stand to benefit from investments into the technology.
On the economic radar, the U.S. Federal Reserve's first interest rate decision of the year is expected on Wednesday, with markets widely expecting the central bank to hold its lending rate steady.
The December reading of the personal consumption expenditures (PCE) is due on Friday, a crucial metric in assessing the trajectory of inflation.
Overnight Crash
The rapid surge in artificial intelligence development has driven companies to pour billions into staying ahead in the competitive landscape. However, the global AI race recently took an unexpected twist as Chinese startup DeepSeek's large language model surpassed its American counterparts, sparking concerns that China may be gaining a significant lead in this transformative technology.
This raised questions about the high valuations of leading AI companies like NVDA 0.00%↑ .
It shows that it is possible to develop powerful AI models that cost less and derail the investment case for the entire AI supply chain, which is driven by high spending from a small handful of hyperscalers.
Technicals
On Sunday, we shared this post over on our X account, highlighting the bearish close outside this channel and the consequences of what was to come if the market failed to find that acceptance quickly back inside.
While everyone is searching for a headline to explain what just happened, we anticipated this exact follow-up. This entire move was driven by weak-handed traders who bought every pullback and formed this exact channel.
The underlying structure of this market was nonexistent, leaving several gaps on the way up, driven by extreme optimism.
This is what happens when panic and fear are in control, and everyone is rushing out of the same door at the same time.
Larger moves in the market happen because the stage is already set for them behind the scenes.
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