Global stock markets experienced a highly volatile week as investor exuberance over the potential of artificial intelligence (AI) hit its first major stumbling block.
On Monday, it was widely reported that a Chinese firm had been able to replicate the performance of the state-of-the-art large language models introduced by major US developers, using just a fraction of the processing power. The news raised questions around the high levels of AI-related capital spending by the world’s largest technology companies over recent months. Tech stocks in the US, Europe and Japan slumped as a result, with particularly heavy losses among semiconductor manufacturers and data centre owners. However, markets recovered to some extent in the days that followed as investors digested the fact that the Chinese breakthrough has the potential to expedite the pace of AI development and adoption around the world.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1% up for the week so far, with the S&P 500 falling 0.5% as, for once, the US technology sector underperformed the wider market. Despite the apparent panic on Monday, however, it is worth noting that the S&P remains only fractionally lower than the all-time high the index recorded in January. Share prices in the US recovered later in the week after the Federal Reserve left interest rates unchanged, but economic data showed American GDP in the final quarter of 2024 had grown more slowly than expected. Alongside signs of pessimism in the jobs market, there are suggestions that the Fed could be in a position to reduce rates sooner rather than later.
UK
In the UK, the FTSE 100 ended Thursday 1.7% higher for the week, reaching its record closing level in the process. Stocks in Britain benefited from their defensive reputation, as well as the relative lack of London-listed technology firms, as investors sought safe havens amid Monday’s sell-off. Gains were also underpinned by positive corporate earnings reports, in particular the news that a major energy company planned to increase its shareholder dividend. There were further signs of domestic economic weakness, however, and two investment banks downgraded their forecasts for UK GDP in 2025. The government set out plans to boost growth, including a controversial proposal to finally build an additional runway at Heathrow, the UK’s largest airport.
Europe
In Frankfurt, the DAX index ended Thursday’s session up 1.6% for the week, while France’s CAC 40 gained 0.2%. European stocks recovered quickly from their early losses as companies – including a major semiconductor manufacturer – reported strong quarterly earnings, and the European Central Bank cut interest rates for the fifth time in eight months. Although the reduction was largely expected, ECB president, Christine Lagarde, laid the groundwork for further monetary easing in the months ahead as policymakers try to stimulate growth in the eurozone. Latest figures showed that euro-area GDP was flat in the final three months of 2024, while the bloc’s largest economy, Germany, undershot expectations with a 0.2% contraction.
Asia
In Asia, the Hang Seng index in Hong Kong gained 0.8% in a week of trading that was severely curtailed by the Chinese lunar new year holiday. Stocks in China rose during Monday’s session on the positive AI news, but markets were closed from midday on Tuesday. Japan’s Nikkei 225 index of leading shares, meanwhile, fell 1% as investors reacted negatively to the AI developments in China and new data showed a fall in consumer confidence in January.
January 24 | January 30 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8502.4 | 8646.9 | 1.7 |
FTSE 250 | 20518.1 | 20805.1 | 1.4 |
S&P 500 | 6101.2 | 6071.2 | -0.5 |
Dow Jones | 44424.3 | 44882.1 | 1.0 |
DAX | 21394.9 | 21727.2 | 1.6 |
CAC 40 | 7927.6 | 7941.6 | 0.2 |
ACWI | 872.9 | 872.7 | 0.0 |
Hong Kong Hang Seng | 20066.2 | 20225.1 | 0.8 |
Nikkei 225 | 39932.0 | 39514.0 | -1.0 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 30 January 2025.
