QQQ Sinks Premarket Amid DeepSeek Threat, Caution Ahead of Tech Earnings & Fed Meeting: Retail Sentiment Nosedives

synopsis

After a record run last week, the broader market sentiment worsened at the start of the new trading week as investors fret about a trio of headwinds. The negativity is concentrated in the tech space, as the Invesco QQQ Trust (QQQ), an exchange-traded fund (ETF) that tracks the performance of the Nasdaq 100 Index, fell 3.49% in Monday’s premarket session.

The QQQ ETF had a strong run in 2024 as the ETF surged 30%, and the momentum has continued into the new year. It hit an all-time intraday high of 539.15 on Dec. 16 and a record closing high of $537.30 in the same session.

A potential threat to U.S. tech dominance from China’s DeepSeek, the imminent big tech earnings deluge and the uncertainty over the Federal Reserve’s rate move at the Jan. 28-29 meeting are serving as pushbacks at the start of the week.

DeepSeek Threat

DeepSeek is a Chinese artificial intelligence (AI) startup founded by hedge fund manager Liang Wenfeng. It released its namesake app  DeepSeek R1 last week, which has already topped Apple, Inc’s (AAPL) App Store rankings. It is widely perceived as a big threat to similar offerings by U.S. pioneers OpenAI and Meta Platforms, Inc. (META).

The DeepSeek R1, an open-source, advanced generative large-language model, has received rave reviews from industry veterans, venture capitalists and others. Marc Andreessen, general partner at Silicon Valley venture capital firm Andreessen Horowitz, called it “AI’s Sputnik moment.”

Meta stock tumbled nearly 4% in premarket amid the fears. An exclusive Information report said leaders of the social media giant’s AI teams worried that the company’s next-generation Llama wouldn’t perform as well as DeepSeek.

Chipmakers also tumbled as DeepSeek reportedly claimed its training models used far fewer Nvidia Corp. (NVDA) chips than the ones used by its U.S. rivals. Nvidia stock tumbled by over 10% in the premarket.

Tech Earnings Loom

Earnings reports from five of the seven tech bellwethers, going by the collective name Magnificent Seven, which have fueled the broader market rally since the bear market bottom in late October 2022, will be released this week. Alphabet, Inc. (GOOGL) (GOOG) will kick off the week with its fourth-quarter report, which is due after the market closes on Tuesday.

Microsoft Corp. (MSFT), Meta Platforms, Inc. (META) and Tesla, Inc. (TSLA) would follow with Wednesday schedules and Apple closes out with its fiscal year 2025 first-quarter report on Thursday.

FOMC Meeting

The central bank’s monetary policy-setting arm - the Federal Open Market Committee 
(FOMC) is scheduled to meet for a two-day meeting, beginning on Tuesday. The post-meeting policy statement will be released on Wednesday, followed by Chair Jerome Powell’s press conference.

The Summary of Economic Projections and, in turn, the dot-plot chart will not be released at the January meeting.

According to the CME FedWatch Tool, the futures market prices in a 99.5% probability of a pause decision. Investors could sift through the statement and Powell’s comments at the presser to understand the Fed’s thinking on the near-term interest rate trajectory.

The expectation of benign interest rates is one of the factors that led investors to pile into stocks in the current bull run and any disappointment on that front could upset the upward momentum. 

On Stocktwits, QQQ was among the top ten trending tickers and the top ten active stocks.

QQQ sentiment and message volume January 27, premarket as of 5:06 am ET | Source: Stocktwits

Sentiment toward QQQ plummeted to ‘extremely bearish’ (17/100) from ‘neutral’ a day ago. Message volume improved but remained at ‘normal’ levels.

While some on the platform questioned the logic behind the knee-jerk reaction, others said the U.S. took AI for granted and that the U.S. companies are overvalued. 

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