CEO Message
Punxatawney Phil saw his shadow, which means we get six more weeks of snow, ice, and my local school district declaring 2-hour delays even when the roads are totally fine (not that I’m bitter).
Read on for some updates on the market and economy as we all wait for warmer days.
-Kevin
The Market Seems to Be Off to an Icy Start
This month was cold- not just temperature, as the stocks have seemed to freeze up too. The top story was a new AI challenger from China, DeepSeek, causing a significant disruption especially for U.S. tech giants. More on that in a minute
The broader market experienced a mix of highs and lows. The S&P 500 had a slight 2.94% increase thanks to recent earnings by big companies, but a benchmark for large-cap stocks, saw a decline of approximately 2.4% in January and investors and industry leaders are scrambling to make sense of the impact, which has sent shock waves throughout Wall Street.
In case you missed it: the entirety of Wall Street went into panic when DeepSeek, a Chinese AI startup, burst onto the scene with a cutting-edge AI chatbot that performs at nearly a fraction of the cost of it’s US competitors. This innovation has rocked investors, as DeepSeek’s offering, rivals top players like OpenAI’s GPT and Google’s Bard, but at much lower prices.
The market responded pretty dramatically: Nvidia saw a HUGE 17% drop in share price, losing $589 billion in market value, the largest single-day loss in its history. Microsoft and Tesla also took hits as the industry reevaluated its future in light of this new and infamous AI wave. They have since stabilized a bit, but this was still a shot across the bow.
To be perfectly clear, I take all economic statistics that come out of China with a heavy dose of salt (since a lot of them are range from ‘exaggeration’ to ‘laughably false’). The claim that DeeSeek only cost ~$5 million is almost certainly untrue. Reports indicate China may have been smuggling in a lot of higher-cost chips via Singapore in the past few years, so it’s entirely plausible they didn’t build the platform on the low-cost chips they claim.
That said, it’s still a reminder that lower cost alternatives will emerge, and the insatiable demand for Nvidia’s chips last year wasn’t sustainable.
Federal Reserve Takes a Wait-and-See Approach
Another thing happened last month that’s worth your attention. Last week the Federal Reserve decided to hold off on changing interest rates. They’re taking a more cautious route, trying to get a better feel for how things are shaping up economically. With all the economic uncertainty, and with the market shifting, the Fed’s just waiting for more data to make sure they’re making the right move.
A lot of people expected them to take more action, but instead, they’re holding tight until they get a clearer picture on things like inflation and the overall economy. It’s all about finding their right spot—keeping things steady but also being ready to jump if things take an unexpected turn. So for now, it looks like investors and analysts will be keeping an eye out for any new info that could shift things down the road. My prediction is we still get more rate cuts this year, just at a slightly slower pace.
Trade & Tax Policy
As I write this, new tariffs are scheduled to go into effect within 24 hours on both Canada and Mexico. I’m skeptical that it actually happens. It’s possible that we go up to the brink and cooler heads announce a face-saving measure and schedule some more negotiations. Or they go into effect and are quickly rescinded. The idea that we all plunge into a trade war seems the least likely scenario, but I’ll revisit this in two weeks to see if my predictions aged like sour milk.
Still waiting on more details on an emerging tax plan, but it sounds like something is in the works. Will report back when it actually starts getting discussed openly.