Things you need to know.
– Stocks paused the rally on Friday.
– DeepSeek stuns the AI world over the weekend causing tech to hemorrhage overnight.
-The VIX surges by 40%
– The FOMC meeting starts tomorrow and ends on Wednesday.
– Another BIG earnings week.
– Try the Pan Seared, Oven Baked Chilean Sea Bass
The stock market – which has been on another tear since earnings started – paused on Friday after teasing all-time highs that saw the S&P pierce the 61st century… – Now, while the optimism continues to be driven by President Trump’s policies on taxes and tariffs, ongoing robust economic activity, impressive earnings reports and a softening stance towards tariffs, Friday’s weakness was seen as more exhaustion than anything else and stocks weakened. By the end of the day – the Dow gave up 140 pts or 0.3%, the S&P lost 17 pts or 0.3%, the Nasdaq lost 100 pts or 0.5%, the Russell down 6 pts or 0.3%, the Transports down 35 pts or 0.2%, the Equal Weighted S&P gave up 6 pts or 0.1% while the Magnificent 7 Index lost 0.4%.
Key market movers included declines in the chipmakers with Nvidia losing 3%, after testing resistance at the $149 level and failing…..This failure causing the momo guys to take some profits causing the stock to test near term support at $144 – and when that failed to hold, the algo’s moved into a more aggressive sell mode sending that stock down more than $5 – taking almost anything tech with it…..
The broad XLK falling 1%, the SOXX – 2%, Disruptive Tech – ARKK down 0.6%, Expanded Tech – IGM down 0.5%, Expanded Tech Software IGV lost 0.5% leaving the whole space wounded.
The other 10 sectors saw mixed action…. Industrials gave up 0.4%, Consumer Discretionary down 0.6%, Energy gave back 1%, Basic Materials down 0.25%. On the other side – we saw money move into Utilities + 1%, Financials +0.3%, Consumer Staples + 0.5%, Communications + 0.9%, Healthcare + 0.2% and Real Estate up 0.3%.
The contra trades were also higher with the DOG gaining 0.3%, PSQ + 0.7%, the SH +0.3%, and the SPXS added 0.9%. Now remember the VIXY? Remember how it gained last week – when the market gained? Which didn’t really make sense – We discussed it…and what I told you was that the VIXY was pricing in some ‘other event’ that was about to cause downside volatility. Now while Friday’s action was not what I would describe as downside volatility – I would describe what happened overnight as concerning and THAT is causing big ‘downside volatility’ across the tech space which is causing pressure on the broader markets across Europe and here at home.
This is the only thing you need to know today….
DEEPSEEK – if you don’t’ know it, you do now….it is a Chinese startup – only 1 yr old and it is causing tech stocks to hemorrhage as the news came out of left field that apparently no one saw coming. You see, their AI model built with open-source technology – which is ‘supposedly’ significantly cheaper – and it is challenging the notion that China’s AI technology is far behind the US’s and that is raising doubts about the whole investment theme across the AI supply chain. The DeepSeek app, which is challenging ChatGPT, BARD, Claude Sonnet, Bing, Perplexity etc. is now the number one app downloaded from the Apple store as the excitement builds….
[Open source refers to software, hardware, or other forms of technology whose source code, design, or blueprints are made publicly accessible. This allows anyone to view, use, modify, and distribute the technology, under the terms of an open-source license. Open-source fosters collaboration, innovation, and transparency by encouraging community contributions and shared development efforts.]Over the weekend – DeepSeek AI– which came out of ‘nowhere’ – made headlines in the AI space…. Essentially, the headlines suggest that DeepSeek’ s AI model has the capacity to disrupt US tech dominance. The company founded by Liang Wenfeng – has found a way to become more cost effective by using ‘reduced capability chips’ that also use LESS energy while outperforming all of the LLM’s out there – (think conversational AI) and that is going to raise all kinds of hysteria as these lower cost chips threaten chip designers and equipment suppliers. The ‘cost effectiveness’ and success in challenging the biggest US AI names is expected to challenge the demand for high-cost chips…. think NVDA and challenge the whole way we think about AI.
Overnight – the NASDAQ got whacked and this morning at 6 am – it is down more than 1000 pts or 5% and it is taking anything tech with it – the guess is that the selloff will see more than $1 trillion in losses in the tech sector – TODAY. The poster child for AI – NVDA is down $16 or 11%, ARM is down 9.5%, ASML – 10%, MU – 8%, AVGO – 10%, QCOM – 3%, AMD – 5%, MRVL – 11% and the list goes on. The algo’s going into sell mode causing buyers to step back – again – It is not that there aren’t any buyers, it’s just that they are all bidding significantly lower and that is causing tech to hemorrhage. This is an unfolding story, and one that is NOT going away…. expect to hear more about this.
The weakness in tech is causing the weakness across the board…Dow futures down 450 pts, S&P’s down 140 pts and the Russell is off by 25 pts all as we gear up for another big week of earnings….that includes airlines, aircraft and parts, cruise ships, aerospace & defense, food and beverage wholesalers, consumer finance, auto’s, and TECH – Apple and Meta are on the docket this week more next week.
We also have the January FOMC meeting that begins tomorrow and ends on Wednesday at 2 pm…. While no one expects them to cut rates, the path forward is a bit unclear as to what is next. Some are still pricing a July cut while others are calling for the FED to hold rates steady. Last week – Donny demanded that the FED cut rates immediately – leaving many to wonder whether or not they will cave…. My guess is that they will not (at least this week). In fact – they shouldn’t at all, the data doesn’t warrant it and slashing rates with a hot economy will only do one thing – and that is reignite inflation – and when that happens, it is usually worse than the first time around. So, be careful what you wish for.
Eco data today includes the Chicago FED Activity Index, the Dallas FED manufacturing activity and New Home Sales – while expected to be up 2.4% – that is below last month’s +5.9%. Building permits are out as well….
Oil is trading at $75; Gold is trading at $2800 while the Dollar is trading at 107.52 – down 30 cts. Bitcoin is down $5000 at $98k with Ethereum down $250 at $3050.
European markets are all lower as well, but not nearly as much as the US indexes…Germany is down 1.4%, the Eurostoxx down 1.6%, while Spain is only.
The S&P closed at 6101 down 17 pts…. after making a new intraday high at 6128. This morning markets are under pressure…as tech gets whacked the VIX surging by 45%….
Now here is how I am thinking about it…. Tech was stretched – we have been talking about it for months…which is why I kept saying ‘don’t chase it’. This morning’s news is a bit of a shock as apparently no one (in tech especially) seemed to see it coming – which for me doesn’t make complete sense at all…think about it – we have the smartest people working on it, developing and designing chips that have changed the world and written the AI narrative and then you tell me that some guy in China is using lesser quality chips on an open source platform and he suddenly does it better than anyone else?
Does anyone think that China is lying? Does anyone think they are incentivized to lie in order to compete in a space that they have been lagging in? Has anyone conducted an audit to confirm any of this? This is exactly why I do not invest in China – I just don’t believe anything they say. But that’s me.
Ok – Since I’m not convinced just yet…I am not selling my NVDA or MSFT or IBM, but I am watching to see how this plays out over the next couple of days and weeks….While it is concerning, I am not panicking….Yes, it’s ugly, yes, its unnerving, but as I have been saying – no one should be surprised at the depth of the moves this morning…All we needed was one catalyst to ignite the fire and we just got it…. I have been telling you not to chase tech stocks, put your money in cash and let’s see what happens…that if the market rallied, you were participating but when (not IF) it declines – you will have money to put to work…Guess what? Aren’t you glad you have that money now?
Now, do not go jumping in just yet – I suspect this weakness will last for a couple of days, even weeks, remember – we are now in the middle of earnings season and with today’s headline, I am not sure we are going to get any report that turns this around right now. Once again – patience is a virtue.
Any questions? Give me a call. Click here https://slatestone.com/contact-us/ to contact me – Put KP in the message box and I will reach out to you to discuss your investment portfolio and any questions you may have.
Take good care.
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
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Pan Seared/Oven Baked Chilean Sea Bass with a Lemon, Butter Sauce
For this you need: 5 – 6 oz pieces of Chilean Sea Bass, skin-on, butter, olive oil, s&p.
For the Lemon Sauce you need – 1/4 cup of butter, lemon juice from 1/2 large lemon, s&p.
Preheat your oven to 400 degrees.
Pat the sea bass fillets dry with paper towels. Generously season both sides with s&p.
Use a large oven proof skillet and heat equal parts of butter and olive oil over med hi heat.
Add the seasoned fillets skin-side-down and pan-sear for 3 minutes.
Flip and place the pan in the oven for 4 mins more.
Now make the lemon sauce…., melt 1/4 cup butter in a small saucepan over medium-low heat until lightly browned. Add the lemon juice, salt, and pepper and mix well.
Back to the oven – The fish is ready when it flakes easily with a fork and has reached an internal temperature of 140-145ºF/60-63ºC.
When everything is ready, spoon the lemon butter sauce over the pan seared Chilean sea bass, serve, and enjoy!
Buon Appetito
