While Chinese markets are closed for the rest of this week, futures show Tokyo equities could slump more than 1% on the open as Sydney stocks looked steady. Most Asian markets were preparing for the Lunar New Year celebrations, with Indonesia, South Korea, Taiwan and Vietnam also shut Tuesday. Bourses in Hong Kong — on track to open higher — and Singapore are due to close early.
Treasuries rallied on Monday, driving yields to the lowest levels this year. Haven currencies including the yen and the Swiss franc climbed, while the crypto world came under pressure. Australia’s 10-year yield fell eight basis points in early Asia trading Tuesday.
“What was shaping up to be a big week in the markets got even bigger with the disruption in the AI space,” said Chris Larkin at E*Trade from Morgan Stanley. “That could make this week’s megacap tech earnings even more critical to market sentiment.”
Monday’s plunge drove new fissures into a market narrative that prevailed since the re-election of Donald Trump in November, the America-first, tech-fueled uber bullishness that saw a clear upward path for risky assets spurred by deregulation, tax cuts and even government sponsorship of AI investment. Treasury yields slid sharply as haven-seeking investors laid aside concern - for today, anyway - that the new president’s policies will stoke inflation.
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The yen rose to its highest level in more than five weeks versus the dollar as traders sought safety in haven currencies amid a sharp selloff in global tech stocks. On Monday, Japan’s chip-related shares including Advantest Corp, SoftBank Group and Furukawa Electric Co got caught in the global tech selloff.
The severity of the rout in US assets was proportionate to the weightings of AI-enabled firms in the biggest stock indexes. Even after a recent paring to curb their influence, the cohort of Nvidia, Apple Inc, Microsoft Corp, Amazon.com Inc, Meta Platforms Inc and Alphabet Inc account for about 40% of the Nasdaq 100. It’s roughly 30% in the S&P 500, leaving both gauges significantly exposed to concerted drops in those names.
“The sudden, adverse market reaction to DeepSeek indicates that some of the key assumptions that have been driving the AI trade, and hence major indices, are getting reassessed today,” said Steve Sosnick at Interactive Brokers. “Part of today’s sudden adverse market reaction was a direct result of a wave of complacency that overtook the equity market.”
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The Dow Jones Industrial Average added 0.7%. A gauge of the “Magnificent Seven” megacaps slid 2.7%. The Russell 2000 slipped 1%. Wall Street’s “fear gauge” — the VIX — soared the most since mid-December to about 18.
The yield on 10-year Treasuries declined nine basis points to 4.53%. The Bloomberg Dollar Spot Index rose 0.1%. Bitcoin slid 2.9% to US$101,481.84.
“I’m hoping this moment encourages everyone to look beyond tech stocks,” said Callie Cox at Ritholtz Wealth Management. “Not because the AI story is doomed, but because there are so many opportunities in unloved sectors that have been ignored for so long. The guts of the market’s foundation are still good, so it’s likely that the dip will be bought here.”
At G Squared Private Wealth, Victoria Greene says that while she’s “not convinced the bubble has burst,” one would be “silly” not to evaluate the potential risks.
“We are looking carefully at how the market progresses from here and if action needs to be taken to protect and shift portfolio allocations,” she noted. “We are not panickers, so tend to be buyers of big dislocations that are happening in tech, energy, and infrastructure today.”
