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Although there is a practically no chance of a rate cut from the Fed this week, there is a 99.5% chance that the Fed will keep rates at 4.25 – 4.50%, all eyes will be on how Fed chair Jerome Powell will react to Donald Trump’s call for the Fed to cut interest rates. With the Fed expected to remain on hold, they could find themselves in the middle of a political storm. The main event for financial markets is not just what the Fed does, it is also how Donald Trump reacts to it. The core PCE report for December is also released on Friday, and this is expected to show a moderate increase in the gain in monthly prices of 0.2%, and the annual rate is expected to remain steady at 2.8%. Thus, the Fed could justify its cautious stance by citing resilience in the jobs market, and economic policy uncertainty caused by the new administration.
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Open account Try demo Download mobile app Download mobile appThe assumption that US tech will lead the future in the AI revolution will be tested this week. The reason is Chinese AI company Deepseek, which released its new R1 product, a large language model, last week also released details on how it created its model, and this is causing an existential crisis in the US stock market.
Deepseek is causing excitement in financial markets for a few reasons. Firstly, it is an open-source model, compared to OpenAI, which is a closed source model, which means anyone can help develop it, and helps to keep costs low. Deepseek’s R1 model is also free to use with a limit of 50 messages a day, suggesting that it could be a real competitor to OpenAI and other US-based AI products.
So far in 2025, the equal weighted S&P 500 has outperformed the market cap weighted index, which is a sign that the stock market rally is broadening out beyond tech.However, these earnings results matter. The market is expecting a sharp slowdown in earnings growth, even if this sector is set to outperform other sectors in the US equity market.
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