Things you need to know.
– China creates global tech havoc – Did they get short the Semi’s on Friday?
– NVDA and others get clobbered.
– This story is far from over, but in the end, competition is good.
– Money moves into the safety trade – Staples, Healthcare and Treasuries benefit.
– Earnings, Earnings and Earnings…BA misses BIG – futures turn south.
– Try the Champagne Chicken
DEEPSEEK will forever be the word that investors associate with the one-day, largest single day selloff, global tech wreck EVER. By now you’ve heard the word – and you most likely know what happened (and if you don’t – you must be living under a rock) and you have made a decision in your head about what you think about the headlines yesterday, right?
Let’s start with what happened to tech – it got CRUSHED, some might say VANQUISHED – which means completely and thoroughly defeated in a competition or battle, conveying a sense of triumph over the opponent.
The Nasdaq which was down over 1000 pts or 5% early in the day – ended the day only down 612 pts or 3% -which many considered a win! The Semi’s – SOXX lost 7.5%, while individual names lost even more…. NVDA – 17%, MU – 11%, AVGO – 17%, AMD – 6.4%, LRCX – 5%, MRVL – 19%. It was this bloodbath that many of the individual names suffered that created the ‘hysteria’ for some while causing others to say ‘hey, wait a minute’. Hysterical sellers running through every door, (even the ones that were closed!) selling every position or going short in any chip name they could find. The hysteria causing all these investors to think – hey this is a crowded trade, and I want out, NOW.
OK – no problem – causing the calmer investors (buyers) to say, you want out? Great, happy to take you out, but I’m not taking you out in line (you’re too hysterical – why should I get run over, just because you’re hysterical?) So, if you want out, it’s gonna cost you….and cost them it did. To be clear – There were plenty of buyers, (remember – for every seller there is a buyer) the headline did not scare the buyers away at all – in fact, if you talk to anyone that bot stock yesterday, they loved the opportunity to buy some of these names at a deep discount….What is important here is that the headline scared the sellers, and that is exactly what caused the buyers to have a field day…. So, now you have to decide whether it was hysteria or an opportunity. It’s funny, I was at dinner last night and this was the exact conversation and everyone at the table was a buyer of NVDA, not a seller…. In the end – was it ugly, yes, was it a bit unnerving, yes (for some) should you panic? Not at all…In the end – no matter how this plays out, competition is good and remember- you get what you pay for!
This story will continue to unfold – remember that in order for this to work, they had to optimize their AI to run efficiently on lower quality (lower cost) hardware by using techniques like quantization and pruning – both strategies that reduce computational requirements and force them to focus on a narrower range of applications. The story is bigger, and we will hear more and more about this over the next few days and weeks – so pay attention – In the end – competition is good, may the better man win.
I was on Yahoo Finance yesterday discussing this very point.
https://x.com/YahooFinance/status/1883986117592060116
Ok – enough of that…the rest of the market was not so bad – The Dow gained 290 pts or 0.6%, the S&P lost 89 pts or 1.5%, the Russell lost 23 pts or 1%, the Transports gained 245 pts or 1.5% while the Equal Weighted S&P GAINED 2 pts – which is important to understand.
There was clear shift towards safety…. Defensive sectors like consumer staples and health care both gained more than 2.25%. Financials added 1.1%, Real Estate added 1%, Consumer Discretionary, Communications, Basic Materials, Energy also all finding buyer and ending the day higher.
The VIX shot higher…. ending the day +20% but not before surging by 51% early in the morning when they hysteria was at its height…. The VIXY gained 6.4% while the SPXS (S&P triple levered short) gained 4%. Now if you were really brave you went long the SOXS (Direxion Semiconductor 3x’s levered short) – that gained 20%…. Today you might want to consider the SOXL (Direxion Semiconductor 3x’s levered long) understanding that both of these ETF’s are not for the faint of heart, not for the average investor and can cut sharply if you get it wrong.
Money also went into the bond market (think safety trade) …the TLT gaining 1.2%, the TLH gaining 1.1%. The 2 yr is now yielding 4.21%, while the 10 yr is yielding 4.56%.
Oil fell yesterday…. why? because they reincarnated the weak China story….just as China reported an ‘unexpected contraction’ in manufacturing activity – adding new concerns over global demand…OK – here we go again…I do not believe one iota of data that comes out of China, because they are incentivized to ‘not tell the truth’ (Just like the DeepSeek story – I don’t believe it the way they told it). In any event – traders sold oil yesterday on the news…..In the end – I think global demand is just fine – Energy demand is not going away….and for those of you who think that the DeepSeek model is going to reduce demand on energy (as was also part of the story), I’d say – OK – you run with that….
Gold had in interesting reaction yesterday – it fell $40 to end the day at $2766 – which was counter to what I thought should have happened – given the hysteria….but the story is that investors were selling gold to cover losses in ‘other asset classes’ (I’ll give you one guess on which asset class that was!). In any event – it is bouncing today – at 7 am – gold is up $9…. This is now as investors await the latest FED decision.
In any event – it is a new day…and US futures are up…Dow futures + 25, S&P’s up 25, Nasdaq + 145 while the Russell is flat. Investors will focus on picking up the pieces from yesterday, while also considering on eco data, the FED, and the slew of earnings that will hit the tape. We are going to get hit with 18 reports before the opening….Think SYF (missed), PII (beat), GM (beat), JBLU, LMT, SYY, RTX, RCL, while investors will focus on those – they will also focus on BA – which has been a disaster year in and year out (they missed and missed BIG – US futures turn around)….What will the newest CEO tell us now? Considering the role BA plays in the US and the airline industry, this will be a KEY report for markets and investors.
Eco data today includes Durable Goods, Richmond Fed Manufacturing, Richmond Fed Business Conditions and the Dallas Fed Services activity….The talk will also turn back to the FED – and what to expect from JJ in the press conference tomorrow about what the future holds for rate cuts or not….And surely some journalist is bound to ask him about the latest Trump demand to cut rates…How will he address that? Will he suggest that Donny mind his own business?
European markets are all higher today as well…. bouncing after the tech sell off…. Focus on Europe is on earnings as well as what the FED will say and how that might affect what the ECB and the BoE say next. This morning – Spain is in the lead up 1.1% with the Eurostoxx index up on 0.4%. Everyone else is in between.
The S&P closed at 6012 down 89 pts…. In my opinion – I think the sell off was good, it shook the branches a bit, it is keeping investors on their toes, reminding them that investing is about the plan. It’s about being diversified and not getting too far over your skis. Tech was stretched – come on, you knew that…. we’ve been discussing this for months now….and why you don’t chase it. The sell off is now creating a new opportunity…tread lightly, use your head and remember to remain diversified.
Like I said yesterday – 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 suddenly does it all better than anyone else? If anything, all that does is raise the competition and that’s not a bad thing.
As I said, all we needed was one catalyst to ignite the fire.
Remember – we are now in the middle of earnings season, there is a lot to digest, stick to your plan and go for it. Always remembering that sometimes 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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Champagne Chicken
For this you need: olive oil, butter, skinless boneless chicken breast fillets, s&p, sliced mushrooms, butter, sliced shallot, ½ cup champagne, ⅔ cup heavy cream, fresh parsley to garnish.
Begin by heating the olive oil & butter in a sauté pan over medium heat. Season each chicken filet with s&p, Sear chicken on both sides, for about 3-5 minutes each side (depending on thickness), until golden all over. Transfer chicken to a plate.
In the same pan – fry the mushrooms in the butter until they begin to soften. Transfer to the same plate as the chicken. Cover and keep warm.
Add the shallots – cook for 4 minutes. Add the champagne; stir well, while scraping any food bits from the bottom of the pan. Season with salt and pepper and simmer for 5 minutes.
Add cream and simmer for 2-3 minutes.
Add back the chicken and mushrooms into the sauce along with any juice. Coat it with creamy sauce. Simmer for 5 mins to warm, Sprinkle with parsley and serve!
Buon Appetito
