Nasdaq drops 3%, S&P falls and Dow holds flat as DeepSeek restricts global use of its app

 

Wall Street's major market averages are noticeably lower on Monday as traders and investors are on edge around China's DeepSeek which has gained attention after it released its open-source AI model, DeepSeek-R1.

As a result, the tech focused Nasdaq Composite (COMP:IND) is lower by 3.1%. At the same time the benchmark S&P 500 (SP500) is off by 1.7%, and the blue-chip Dow (DJI) is near even.

DeepSeek restricted registration for its artificial intelligence chatbot app to those with mainland China mobile phone numbers only. "Currently, only registration with a mainland China mobile phone number is supported," DeepSeek posted on its website.

From a sector-by-sector point of view, seven of the 11 S&P sectors currently trade in negative territory with Info Tech suffering the most. At the other end of the spectrum, Consumer Staples find themselves leading all other segments.

While tech struggles, the the classic blue-chip stocks within the Dow (DJI) are behaving like - well, blue chips as the index remains mostly unchanged on Monday.

Semiconductor names have also struggled with names such as Nvidia (NVDA), Broadcom (AVGO), and Marvell Technology (MRVL) both falling more than 15%.

"Market panics are common, and currently, it is understandable with American exceptionalism in full force," Manish Kabra, lead U.S. equities and multi-asset strategist at Societe Generale said. "The Mag-5s (NVDA + its top 4 customers, i.e. Microsoft, Google, Amazon, Meta) have contributed approximately 700 points to the S&P 500 over the last 2 years."

"There are many questions about the ‘true cost’ of DeepSeek AI rollouts, their capabilities, and the wide acceptability of their products," Kabra said. "Arguably, the onus may be on the hyperscalers to justify their capex projections, but on a top-down basis, we see that if more companies create productive ways of using AI, hyperscalers should also benefit from this. If cost-efficient ways can be created, this has to be a net positive."

In the bond market, rates plunged as cash moved to safety. The 10-year Treasury yield (US10Y) fell 7 basis points to 4.54%.

On the economic calendar, new home sales climbed past consensus in December. Data came in at +3.6% to 698K versus the 672K consensus level.