U.S.

Markets: Volatility and AI Competition Concerns Weigh on Stocks

U.S. stocks had a volatile week, with most major indexes closing lower, except for the Dow Jones Industrial Average, which managed a modest gain for its third straight positive week. The Nasdaq Composite saw a significant drop on Monday, largely due to a sell-off in tech stocks triggered by concerns over new competition in artificial intelligence. Chinese AI firm DeepSeek launched an cost and energy-efficient open-source large language model, sparking fears of increased competition, which led to NVIDIA shares plummeting nearly 17% in a single day.

Earnings season remained a key focus, with companies representing around 40% of the S&P 500’s market capitalization reporting their results. Several large-cap tech firms, including Meta and Apple, delivered strong earnings and positive outlooks, helping the market recover some losses later in the week.

Trade and Policy: Tariff Uncertainty Grows

Political developments also influenced market sentiment. President Donald Trump reaffirmed plans to impose 25% tariffs on goods from Mexico and Canada by February 1, while also threatening a 10% tariff on Chinese imports. This comes after previous comments that had raised hopes of a more moderate approach to trade policy.

Federal Reserve: Rates Hold Steady Amid Inflation Concerns

The Federal Reserve concluded its first meeting of 2025, maintaining interest rates in the range of 4.25%–4.50%, as expected. In a press conference, Fed Chair Jerome Powell emphasized that policymakers do not feel pressure to adjust rates soon, signaling a cautious approach. The latest core PCE inflation data, released Friday, showed a 2.8% year-over-year increase for December, reinforcing the Fed’s stance that inflation remains elevated.

Bonds and Treasury Yields

U.S. Treasury yields declined, partially reversing early-week concerns sparked by the AI competition news. The corporate bond market had a relatively quiet week, with limited new issuance.

UK

Mortgage market steady

Mortgage loan volumes in the UK were higher than expected in December, rising the most since September 2022, according to Bank of England data. Lenders approved 66,526 new mortgages for home purchases, up from 66,061 in November.

Market Performance (Weekly Changes):

Index	Friday's Close	Week's Change	% Change YTD
DJIA	44,544.66	120.41	4.70%
S&P 500	6,040.53	-60.71	2.70%
Nasdaq Composite	19,627.44	-326.86	1.64%
S&P MidCap 400	3,239.04	-36.60	3.78%
Russell 2000	2,287.69	-20.05	2.58%

Europe

Record Highs and Interest Rate Cuts

European markets saw gains, with the STOXX Europe 600 Index reaching a record high, supported by strong corporate earnings and the European Central Bank’s (ECB) decision to cut interest rates. Germany’s DAX also hit a new peak, rising 1.58%. The UK’s FTSE 100 gained 2.02%, helped by a weaker pound.

The ECB reduced its key deposit rate by 0.25 percentage points to 2.75%, with President Christine Lagarde stating that disinflation remains on track. However, she refrained from committing to further rate cuts in the near term. Meanwhile, the eurozone economy stagnated in Q4, with Germany and France contracting slightly, while Spain posted growth.