The Nasdaq and S&P 500 Rebounded on Tuesday After Tech Rout
The Nasdaq and S&P 500 recovered on Tuesday following a significant stock sell-off driven by concerns about overconfidence in the potential return on investment (ROI) from Big Tech companies' ventures into Artificial Intelligence (AI). Investors also considered President Donald Trump's potential re-implementation of stricter tariffs ahead of a Federal Reserve meeting where the impact of such policies will likely be discussed.
The technology-heavy Nasdaq Composite (^IXIC) gained over 1.8%, rebounding from a closing loss of more than 3%. The S&P 500 (^GSPC) rose nearly 0.8%, while the Dow Jones Industrial Average (^DJI) increased by 0.4%. Stocks began to recoup losses incurred during Monday's tech-led decline, which was prompted by the hype surrounding the potentially lower-cost AI model developed by Chinese startup DeepSeek. This development raised questions about whether chipmakers and other tech companies can meet the high earnings expectations that have been set.
Bellwether chip giant Nvidia (NVDA) surged by more than 7%, partially recovering from a 17% plunge in the previous session that erased a record $589 billion in market value.
Meanwhile, the US dollar (DX=F) strengthened after renewed tariff threats from Trump, rekindling concerns about a trade war that had previously been in focus following a brief standoff with Colombia. Trump indicated his desire for universal tariffs "much bigger" than the 2.5% that his incoming Treasury Secretary, Scott Bessent, reportedly plans to introduce gradually.
With inflation risks in mind, investors are closely monitoring the Fed's two-day policy meeting that began on Tuesday. The central bank is expected to maintain interest rates, given recent positive economic data.
General Motors (GM) initiated a series of significant earnings updates, reporting a quarterly sales and profit beat due to improvements in its EV and China operations. Boeing (BA) disclosed an annual loss of almost $12 billion following a strike and issues within key units.
In light of the DeepSeek announcement, focus has intensified on the upcoming earnings reports from Big Tech companies this week, including Apple (AAPL), Tesla (TSLA), Meta (META), and Microsoft (MSFT).
AI-Exposed Power Stocks Attempt Rebound as Investors Assess Near-Term Data Center Deployment
AI-exposed power stocks attempted a recovery on Tuesday after being battered in the tech rout due to concerns that energy demand for the AI boom may not meet expectations. Constellation Energy (CEG), the largest nuclear plant operator in the US, remained relatively stable after a 21% tumble during the previous session. Electricity generator Vistra Corp (VST) rose more than 4% after experiencing a record 28% decline. Power equipment manufacturer and servicer GE Vernova (GEV) also gained 2%, partially retracing its 21% drop from the previous day.
AI-exposed energy stocks were recovering from a significant selloff on Monday after Chinese startup DeepSeek released a new AI model considered more competitive and energy-efficient than its US competitors. The selloff shook investors given the optimistic outlook for electricity needs to support the rapidly growing AI data center industry.
Power stocks had experienced a strong rally throughout 2024 and the start of 2025. According to Paul Zimbardo, managing director for US power utilities & clean energy research at Jeffrries, data center deployment is "likely intact" in the medium term as the race remains ongoing. However, the question remains as to what will happen later in the decade and beyond 2030.
"Will the trend accelerate in the future? Will demand growth stabilize or even moderate later in the decade?" Zimbardo questioned.
Trump's Orbit Attempts to Calm Markets on Tariffs, Despite Mixed Signals
New mixed messages emerged this week regarding President Donald Trump's implementation of tariffs, leaving markets and businesses uncertain about the direction of his trade policy. The primary source of confusion stems from public signals from Trump's circle often conflicting with Trump's own statements.
This contradictory back-and-forth has been a characteristic of the tariff debate since Trump's election and has become increasingly significant as Trump's self-imposed Feb. 1 deadline approaches. He has threatened to impose 25% tariffs on Canada and Mexico and 10% duties on China.
OpenAI Launches ChatGPT Gov Amid Industry Disruption
OpenAI announced on Tuesday the release of a tailored version of its ChatGPT language model specifically designed for US government agencies. This product launch comes at a time when the industry is still reeling from the emergence of DeepSeek, a cost-efficient Chinese AI startup. President Trump has also urged tech companies to maintain a competitive edge.
OpenAI stated that the new service, dubbed ChatGPT Gov, is intended to enhance the government's access to its models, allowing agencies to better manage security and compliance as they handle sensitive data. "By making our products available to the U.S. government, we aim to ensure AI serves the national interest and the public good, aligned with democratic values, while empowering policymakers to responsibly integrate these capabilities to deliver better services to the American people," the company said in a statement.
Tech Leads Nasdaq, S&P 500 Recovery
Tech stocks led the major averages higher on Tuesday, with the Nasdaq Composite (^IXIC) gaining over 1%. Apple (AAPL), which was an outlier during Monday's tech rout, extended its gains to rise by more than 3%. Amazon (AMZN), Alphabet (GOOGL, GOOG), and Microsoft (MSFT) also saw increases.
AI chip giant Nvidia (NVDA) rose more than 2% in early trading, recouping a fraction of its 17% plunge from the previous session.
JetBlue Stock Extends Decline on Weak Outlook
JetBlue (JBLU) shares plummeted by as much as 22% on Tuesday, their most significant drop since 2020, after the air carrier reported a disappointing first-quarter outlook for revenue per available seat mile (RASM). For the current three-month period, JetBlue anticipates RASM to decline between 0.5% and increase by 3.5%, below estimates of over 4% growth. JetBlue's fourth-quarter loss was narrower than expected, with an adjusted loss per share of $0.21, exceeding estimates of -$0.31. The domestic low-cost carrier also faces higher operating costs. JetBlue has faced numerous challenges over the past year, including a blocked merger with competitor Spirit in 2024.
US Home Prices Hit Record High in November
US home prices reached a record high in November as the pace of price increases accelerated. The S&P Case-Shiller National Home Price Index rose 3.8% from a year earlier in November on a seasonally adjusted basis, exceeding the 3.6% annual increase in October. The data captures a three-month period through November when mortgage rates were approaching 7%, providing little relief for prospective buyers during a typically slower selling season.
Despite the increase in borrowing costs, the national index achieved a record high for the 18th consecutive month on a seasonally adjusted basis. However, on a monthly basis, prices edged up by 0.4% over the prior month in November, compared to October's 0.3% monthly increase.
Brian D. Luke, head of commodities at S&P CoreLogic, noted, "With the exception of pockets of above-trend performance, national home prices are trending below historical averages."
The index tracking home prices in the 20 largest metropolitan areas gained 4.3% in November from a year earlier, compared with a 4.2% increase in the previous month, according to S&P CoreLogic Case-Shiller data. New York remained the top state for annual gains, with a 7.3% increase.
Nvidia Stock Begins Recovery After DeepSeek AI Frenzy
Nvidia (NVDA) stock rose by 2.5% pre-market on Tuesday as the AI chipmaker initiated a recovery from a massive decline the previous day that had reduced its market cap by nearly $600 billion. Nvidia's 17% free-fall on Monday was triggered by investor concerns about a new, cost-effective AI model developed by the Chinese startup DeepSeek.
Some Wall Street analysts expressed apprehension that DeepSeek's reported lower costs for training its latest AI models, partially attributed to using fewer AI chips, could indicate that US firms were potentially overspending on artificial intelligence infrastructure. Nvidia's $589 billion market cap decline was the largest single-day loss in stock market history.
The DeepSeek announcements negatively impacted not only Nvidia but the broader market, with the tech-heavy Nasdaq losing 3%. Chip stocks experienced a general decline on Monday but began to rebound on Tuesday morning.
GM CEO Barra: "I've Talked to President Trump About Tariffs"
General Motors (GM) chair and CEO Mary Barra discussed tariffs with President Trump. "We've done a lot of scenario planning, and we know the levers that we can pull to minimize any impact. But having the opportunity to talk to the president, I genuinely believe he wants a strong manufacturing sector because it's good for the economy," Barra told Yahoo Finance on Tuesday.
GM stated in its earnings release that it assumes a "stable" policy environment. Its full-year 2025 EPS guidance of $11 to $12 exceeded consensus forecasts of $10.75 and does not include the potential impact of additional tariffs.