DeepSeek deep-sixed tech stocks on news of its low-cost AI model. U.S. tech stocks fell 5.6% on January 27th and Nvidia shed $600 billion in market cap, a one-day record. Wall Street worries DeepSeek will dent demand for Nvidia’s AI chips and that some prior AI spending will prove wasted. We are reserving judgment on both points.
Despite the tech sell-off, U.S. equities moved higher in January with the S&P 500 up 2.8%; even the tech-heavy Nasdaq gained 1.7%. Moderating inflation was a meaningful tailwind for stocks last month.
Encouragingly, bonds caught a bid on January 27th, with the U.S. 10-Year Note Yield falling 13 basis points intra-day. We write encouragingly, as investors continue to seek refuge from difficult markets in U.S. government debt.
A look ahead…
Wall Street hopes to hear more from President Trump on his policy priorities, particularly as it concerns trade and taxes. We expect fiscal policy to be supportive of growth but additive to inflation. The question is what that balance looks like — and now there is the possibility of unilateral tariffs on Mexico, Canada, and China come February 1st (we are taking pen to paper on January 31st).
Q4 earnings season rolls on in February. To date, approximately 163 of the S&P 500 have reported results, with sales up 5% and earnings up 11%, on average. U.S. stocks are expensive by historic standards, but if earnings growth can hang in there the market should be able to as well.
The Fed doesn’t meet until March 18th and 19th, so it should be quiet on the monetary policy front. The January CPI is due out February 12th and the January PPI the 13th. As of now, the Fed is guiding to two rate cuts in 2025.May 21st.
