OP Wire 1/27 (OP – Lite)

By Steve

January Market Outlook: AI Rivalry, Fed Decisions, and Tech Earnings Drive Sentiment

Good morning, traders! Let’s dive into the critical events shaping this week’s market action.

1. Futures Lower Amid New AI Rivalry

U.S. stock futures fell sharply on Monday as markets reacted to the debut of DeepSeek’s AI model, a Chinese innovation positioned as a potential competitor to OpenAI’s ChatGPT. The news comes with skepticism about DeepSeek’s claims of achieving comparable performance to U.S. counterparts without advanced GPUs or significant spending.

By 03:21 ET (08:21 GMT):

S&P 500 Futures: Down 103 points (-1.7%)
Nasdaq 100 Futures: Down 647 points (-3.0%)
Dow Futures: Down 395 points (-0.9%)

Meanwhile, geopolitical concerns also weighed on markets. President Trump’s recent tariff standoff with Colombia highlighted growing trade tensions. Over the weekend, Colombia agreed to accept U.S. deportation flights, alleviating some fears of escalating tariffs.

Analysts are closely monitoring these developments as rising trade disputes could reintroduce inflationary pressures, influencing Federal Reserve policy in the months ahead.

2. Federal Reserve Holds the Spotlight

The Federal Reserve’s rate decision on Wednesday is the main event this week. The Fed is widely expected to keep interest rates steady, maintaining the 4.25%-4.50% range.

Key considerations:

Investors are eager for hints on the Fed’s next moves after a series of rate cuts aimed at tackling inflation.
While inflation remains above the Fed’s 2% target, markets are pricing in around two more rate cuts by the end of 2025.

President Trump’s ongoing tariff policies and calls for aggressive rate cuts add an element of uncertainty to the Fed’s plans.

3. Tech Earnings Take Center Stage

The “Magnificent 7” tech giants are in focus as earnings season continues. Key reports this week include:

Meta Platforms (META)
Apple (AAPL)
Microsoft (MSFT)
Tesla (TSLA)

Earnings results will likely determine whether the market rally can continue. With valuations already stretched, disappointing figures could weigh heavily on sentiment. Additionally, the race in artificial intelligence remains a hot topic, with companies providing updates on their AI strategies for the year ahead.

4. Weakness in China’s Manufacturing Sector

China’s manufacturing sector unexpectedly contracted in January, with the Purchasing Managers’ Index (PMI) dropping to 49.1 from December’s 50.1, signaling contraction. Non-manufacturing activity also slowed, as U.S.-China trade tensions and sluggish domestic demand dampened growth.

Analysts believe the slowdown may be temporary, with fiscal stimulus measures expected to support China’s economy in the coming months. However, the data contributed to bearish sentiment in global markets.

5. Oil Markets Dip

Oil prices fell on Monday amid President Trump’s call for OPEC to lower crude prices and increased U.S. energy output. Weak manufacturing data from China, the world’s largest oil importer, also weighed on the market.

WTI Crude Futures: Down 0.4% to $74.33/barrel
Brent Crude Futures: Down 0.5% to $77.19/barrel

Quick Reference: Nasdaq Key Levels

Upside Targets: 22100, 22300, 22450, 22900
Downside Targets: 21550, 21300, 21100

Nasdaq futures are nearing a critical pivot at 22100. A failure to defend this level could lead to significant downside testing, while a breakout could signal new all-time highs.

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