A look at the day ahead in U.S. and global markets from Mike Dolan

Markets took a deep breath on Tuesday after Wall Street's shock start to the week, with the emergence of cheap Chinese artificial intelligence rival DeepSeek lopping more than half a trillion dollars off what had been America's most valuable firm Nvidia ( NVDA ).

The tech swoon clocked some impressive milestones and the long-standing concentration of megacap stocks in S&P500 at large dragged broader indexes down sharply.

Nvidia's ( NVDA ) 17% one-day drop marked the biggest loss in market capitalisation for a single stock ever, outstripping its own record from last September. The 9% drop in US chipmakers was the biggest in almost four years and the Nasdaq's 3% was its biggest loss of the year so far.

Perhaps most curiously, power companies, which are expected to see higher demand from energy-intensive data centers needed to develop AI, also fell sharply. Vistra ( VST ) dropped 28.3% and Constellation Energy ( CEG ) fell 20%.

Keeping it all in context, however, Nvidia's ( NVDA ) relegation from biggest to third most valuable firm merely brought its stock back to October levels - still 94% higher than it was a year ago.

Even though the S&P500 had its biggest daily loss in a couple of weeks, the equal-weighted version of the index that evens out distortions of the handful of megacaps actually edged higher on the day and 70% of the index's stocks rose on Monday.

Apple ( AAPL ), which retook the top valued firm slot from Nvidia ( NVDA ) and which reports quarterly earnings on Thursday, was up 3% on Monday.

So, an unnerving day for what has been the dominant AI theme around the world over the past 18 months - but not all as terrible as it seemed. U.S. AI developers welcomed the DeepSeek readout and model and even U.S. President Donald Trump merely characterised it as a wakeup call to U.S. tech firms.

That said, the DeepSeek development reintroduces obvious questions from last summer about whether the scale of the investment spend was warranted and that will now be looked at forensically again through the unfolding earnings season.

Before Apple ( AAPL ) tees up on Thursday, Microsoft ( MSFT ), Tesla and Meta report earnings tomorrow.

With mainland Chinese markets closed from today for the lunar new year holiday, fresh news on the saga is likely to be thin for a bit.

Ahead of Tuesday's bell, U.S. stock futures appeared to find their feet, with Nasdaq up 0.7% and S&P futures up 0.4%. Nvidia ( NVDA ) bounced about 6% out of hours.

The ripples overseas were limited too - with Japan's Nikkei caught in Monday's tech slipstream and underperforming with a loss of 1%. European stocks, by contrast, were up 0.7% to a new intraday record and Hong Kong was also marginally higher.

One eye-catching aspect of Monday's shakeout was the degree to which it hit U.S. Treasury yields and Federal Reserve futures.

With the Fed kicking off its latest two-day policy meeting today and widely expected to stand pat as it assesses the policies of the new Trump administration, rate futures reacted to tech wobble by moving to fully price two rate cuts this year.

January consumer confidence readings top today's economic data diary.

Two-year Treasury yields followed suit, plunging back below 4.2% for the first time in more than a month and 10-year yields dipped below 4.5% for the first time this year. Both have ticked back higher early on Tuesday as equity markets stabilised.

The dollar reacted likewise, falling to new year lows during Monday's upheaval but regaining ground today.

Helping that dollar bounceback was a re-boot of Trump tariff fears.

Even though newly confirmed U.S. treasury Secretary Scott Bessent was reported to be pushing for a modest universal tariff hike of just 2.5%, Trump responded to that by further sweeping tariff threats on copper and aluminium imports.

And in what seemed like another night of seemingly endless Trump commentary, the new President told reporters he thought Microsoft ( MSFT ) was in talks to acquire TikTok and that he would like to see a bidding war over the app.

Elsewhere, HSBC's ( HSBC ) stock slipped as the bank said it would wind down its M&A and equities businesses in Europe, Britain and the Americas - signalling its biggest retrenchment from investment banking in decades and an acceleration of its shift to Asia.

Key developments that should provide more direction to U.S. markets later on Tuesday:

* US January consumer confidence, December durable goods orders, November house prices, Richmond Federal Reserve Jan business surveys, Dallas Fed service firms survey

* US Federal Reserve's Federal Open Market Committee starts two-day meeting

* US corporate earnings: Boeing ( BA ), Starbucks ( SBUX ), Kimberly-Clark ( KMB ), Sysco ( SYY ), Lockheed Martin ( LMT ), General Motors ( GM ), Invesco ( IVZ ), Stryker, Chubb, Packaging Corp of America ( PKG ), Royal Caribbean Cruises, Paccar ( PCAR ), Synchrony, RTX, BXP, F5

* US Treasury sells $44 bln of 7-year notes, $30 bln 2-year floating rate notes

(By Mike Dolan, editing by Ed Osmond; [email protected])