TORONTO — Stock markets in Canada and the U.S. slid on Monday, led by deep losses in tech after investors were rattled by news of a Chinese AI startup that could pose a competitive threat to a sector that's led market gains for the past couple of years.
The S&P 500 index fell 88.96 points, or 1.5 per cent, at 6,012.28, while the Nasdaq composite plunged more than three per cent lower, down 612.47 points at 19,341.83
The Dow Jones industrial average bucked the trend, rising 289.33 points at 44,713.58.
On Bay Street, the S&P/TSX composite index closed down 179.34 points at 25,289.15.
The market is like a “coiled spring,” said Allan Small, senior investment adviser at iA Private Wealth, poised to make dramatic swings at the slightest news.
This time, that news came from the other side of the world. A Chinese startup called DeepSeek unveiled a large language model that apparently rivals those created in the U.S. — but that costs significantly less.
The revelation shook investors, said Small, weakening assumptions about the cost and energy use of artificial intelligence infrastructure as well as the need for the latest microchips.
U.S. companies have spent big to bet on technology, data centres and other investments, now investors are questioning whether all that money is necessary, said Small.
“Now the question becomes for all investors, is this the buying opportunity that many were waiting for? And some people are saying yes. Some people are saying no. Some people are saying, wait and see,” he said, noting that there are still lots of unanswered questions about this new competitor and the threat it could pose.
“There's uncertainty out there, and we know the market doesn't like it.”
However, in a sector where the gains over the past few years have been particularly strong, Small added that some selloffs are to be expected: “Nothing goes up in a straight line.”
Chipmakers like Nvidia, along with other companies involved in or standing to profit from AI, sank Monday.
Nvidia's stock fell almost 17 per cent, while Microsoft was down 2.1 per cent, Alphabet lost four per cent, and Constellation Energy fell 21 per cent, having said it plans to restart a shuttered nuclear power plant to supply Microsoft's data centres.
Attention will remain on big tech names this week as Apple, Meta, Microsoft and Tesla are all set to report earnings.
Those reports will likely be the biggest drivers this week, said Small, as the Bank of Canada and the U.S. Federal Reserve are set to announce interest rate decisions on Wednesday that are largely already priced into the market.
The U.S. likely is getting a pause, he said, while Canada is expected to see a cut.
However, investors will be waiting for central banker comments for any hints on where rates could be headed next, he added.
The Canadian dollar traded for 69.54 cents US compared with 69.75 cents US on Friday.
The March crude oil contract was down US$1.49 at US$73.17 per barrel and the March natural gas contract was down 20 cents at US$3.25 per mmBTU.
The February gold contract was down US$40.50 at US$2,738.40 an ounce and the March copper contract was down nine cents at US$4.23 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Jan. 27, 2025.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Rosa Saba, The Canadian Press
