Investing.com – US stock futures dropped on Monday as markets assessed the release of a Chinese firm’s new artificial intelligence model that may rival OpenAI’s ChatGPT, while the dollar rose in response to a tariff spat between President Donald Trump and Colombia. Later this week, the Federal Reserve is expected to keep interest rates unchanged, while results from mega-cap tech companies could further impact sentiment around the broader stock market. Elsewhere, activity in China’s manufacturing sector unexpectedly contracts in January.
1. Futures lower
US stock futures pointed lower on Monday as investors eyed the implications of the launch of Chinese start-up DeepSeek’s new artificial intelligence model that could compete with OpenAI’s ChatGPT.
Markerts were also gearing up for a major event-driven week featuring a crucial Federal Reserve interest rate decision and earnings from tech industry giants.
By 03:21 ET (08:21 GMT), the S&P 500 futures contract had shed 103 points or 1.7%, Nasdaq 100 futures had fallen by 647 points or 3.0%, and Dow futures had declined by 395 points or 0.9%.
The benchmark S&P 500 hit a record high last week. Traders were bolstered by hopes of easing inflation pressures in the US and eyeing a stance on international trade from the new Trump administration that has yet to include sweeping tariffs on friends and foes alike.
Trump has threatened to impose levies on several US trading partners, with Colombia being the most recent target after the South American country refused to accept military flights carrying deportees from the US. Washington backed down over the weekend, however, following Colombia’s decision to accept the aircraft.
Some economists have argued that Trump’s tariffs policies could revive price pressures, and subsequently persuade the Fed to roll out possible equity-friendly interest rate cuts at a slower pace this year. In January, the S&P 500 has advanced by around 4%, suggesting an early extension to a two-year string of increases in stocks.
The longevity of this rally may be tested this week when the Fed announces its policy decision and big-name tech firms publish quarterly reports — and potentially provide an update on their ambitions for artificial intelligence this year (more below).
2. Fed decision this week
Underpinning much of Wall Street’s sentiment is the Fed’s impending rate announcement on Wednesday following the central bank’s latest two-day meeting.
The Fed is widely tipped to keep borrowing costs unchanged, following a string of reductions late last year that the left the all-important benchmark rate at a range of 4.25% to 4.50%.
But investors will be keen for officials to give any sense of when they might resume cutting rates. The Fed’s easing cycle has come after a sequence of hikes designed to corral red-hot inflation, but price growth remains above the Fed’s 2% target.
Money markets are pricing in around 40 basis points, or roughly two more cuts, by the end of December, according to LSEG data cited by Reuters.
Yet a wild card faces the Fed in the form of President Trump. Policymakers have already flagged worries around uncertainty stemming from his tariff plans, while Trump himself has called on the Fed to slash rates.
3. Tech earnings loom large
On the corporate front, attention will likely center on quarterly results from a host of influential tech companies this week.
Instagram-owner Meta Platforms (NASDAQ:META), iPhone-maker Apple (NASDAQ:AAPL), software titan Microsoft (NASDAQ:MSFT) and Elon Musk-led electric carmaker Tesla (NASDAQ:TSLA) are all due to report.
Some analysts have suggested that, with the Fed projected to pause rate cuts for an unknown period of time, the strength of these earnings could grant renewed impetus to a long-running surge in equities on Wall Street.
Yet, with valuations already stretched, others have fretted that downbeat figures from these groups — all members of the so-called “Magnificent 7” cadre of mega-cap tech players — could dent optimism around an extension in the years-long rally.
Adding to the intrigue has been China’s DeepSeek, a start-up which purports to have built an AI model to rival that of OpenAI’s ChatGPT despite not having access to high-end chips and spending sums well below the vast amounts shelled out by many of the tech industry’s biggest names.
“The entire US equity market is resting on the backs of mega-cap tech stocks, which in turn are being propelled by AI optimism – while DeepSeek’s claims have attracted a fair amount of skepticism, the company could represent a fatal thread being pulled from the edifice of AI enthusiasm,” analysts at Vital Knowledge said in a note to clients.
4. Chinese factory activity shrinks
Chinese manufacturing sector activity unexpectedly shrank in January, official data showed on Monday, even as Beijing took steps to bolster local businesses through a raft of stimulus measures.
Growth in non-manufacturing activity also slowed sharply in January, as the outlook for domestic firms was clouded by the prospect of harsh US trade tariffs.
The January level of the manufacturing purchasing managers’ index (PMI) fell to 49.1 in January, compared to expectations that it would remain steady at the 50.1 logged in December. A reading below 50 indicates contraction.
Non-manufacturing PMI — which includes both the services and construction industries — slid to 50.2, lower than December’s mark of 52.2. China’s composite PMI came in at 50.1, below projections of 52.1 and 52.2 in the prior month.
In a note to clients, analysts at Capital Economics said that while the PMIs suggest China’s economy lost some momentum in January, “the slowdown at the start of the year will probably prove temporary, as fiscal stimulus should support economic growth in the near-term”.
5. Oil dips
Oil prices fell Monday, with traders assessing President Trump’s call last week for the Organization of the Petroleum Exporting Countries to lower crude prices.
By 03:25 ET, the US crude futures (WTI) dropped 0.4% to $74.33 a barrel, while the Brent contract declined by 0.5% to $77.19 per barrel.
The crude market was nursing steep losses from last week after Trump declared a national emergency and called for a sharp increase in US energy output, while also urging the OPEC producer group to bring down crude prices.
Oil markets were also hit by the weak PMI data from China, the world’s top oil importer.
