Stock Market Today: February 3rd - 7th, 2025

Welcome to the trading week of February 3rd!

Dow closes 300 points lower Friday as White House says tariffs will start Saturday: Live updates



The S&P 500 slid Friday following news that President Donald Trump's aggressive tariffs against major U.S. trading partners would begin on Saturday.

The broad market index shed 0.50% to close at 6,040.53, while the Dow Jones Industrial Average tumbled 337.47 points, or 0.75%, weighed down by a decline in Chevron. The 30-stock Dow ended the session at 44,544.66. The tech-heavy Nasdaq Composite slipped 0.28% to 19,627.44.

Stocks gave up their earlier gains after White House press secretary Karoline Leavitt announced on Friday afternoon that the president's tariffs will be available for public inspection at some point Saturday. Trump will be leveling 25% tariffs on Canada and Mexico, alongside a 10% duty on China. At its session highs, the blue-chip Dow had risen more than 170 points. Stocks with exposure to these markets reacted such as Corona brewer Constellation Brands and Mexican food chain Chipotle, which respectively shed nearly 2% and 1% upon the news.

"This is very similar to what we saw on Monday, with DeepSeek, right? So there was the news; the first reaction was to sell," said Tom Hainlin, senior investment strategist at U.S. Bank Asset Management Group. "There's the initial reaction to the headlines about tariffs. We have no details about them. We have no details about the percent, whether they're temporary or permanent, what reaction you might get from Canada or Mexico or China. Our perspective is we'll wait, and find out when the actual policy is implemented."

Investors also honed in on Apple, which exceeded fiscal first-quarter expectations. While Apple reported disappointing sales tied to the iPhone, services revenue appeared to take the spotlight. The stock ended the session 0.7% lower. Shares of Chevron and Exxon Mobil respectively dipped 4.6% and 2.5% on the back of disappointing fourth-quarter results.

Friday's action follows a winning — but volatile — trading session for the three major indexes. Technology has been a major focus of investors this week given Monday's big sell-off sparked by developments out of China's DeepSeek artificial intelligence startup and earnings reports from key players over recent days.

"I thought that that huge sell off was overdone," said Jay Hatfield, CEO of Infrastructure Capital Advisors. "The DeepSeek freak is fading. We think it'll fade further with Amazon and Google reporting next week, and of course, Nvidia later. We're optimistic on that."

After tumbling 3.07% on Monday, the Nasdaq Composite ended Friday with a weekly loss of 1.6%. The S&P 500 and blue-chip Dow finishing the week 1% lower and 0.3% higher, respectively. Nvidia, which plunged nearly 17% on Monday, posted a weekly loss of roughly 16%.

Friday also marks the last day of what has been a rocky January for traders. Nevertheless, the three major averages posted monthly gains, with the S&P 500 rising 2.7% and the Nasdaq advancing 1.6%. The Dow outperformed in the period, jumping 4.7%.

"We still do have a fair amount of earnings," Hatfield added. "Usually, it pays to be long during earnings, so we would continue to be bullish into February."

Friday's release of the December data for the personal consumption expenditures price index — the Federal Reserve's preferred inflation gauge — showed an increase of 0.3% from November and a 2.6% annual rate. While this yearly advance was in line with economists' expectations, it marked an acceleration from the prior month's rate of 2.4% — raising some concerns that inflation remains sticky. Excluding food and energy, core PCE also increased 0.2% monthly and 2.8% on an annual basis.

This past week saw the following moves in the S&P:


S&P Sectors End of Week:


Major Indices End of Week:


Major Futures Markets End of Week:


Economic Calendar for the Week Ahead:

 

As Goes January, So Goes the Year? The Bulls Hope So.


“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Mark Twain

An effect widely known as the January Barometer looks at how the S&P 500 does in January and what it may mean for the next 11 months. It is known by the saying, ‘So goes January, goes the year’ in the media. The late Yale Hirsch first presented the phenomenon in Almanac Trader 1972. Today the Almanac is carried on by Yale’s son Jeff. I’ve known Jeff for years, and I must say, he is great, and I believe the work they do is some of the best in the industry on market seasonality, calendar effects, and many other indicators.

Let’s look at the January Barometer. For starters, two years ago we saw the S&P 500 lower in January and it was followed by a vicious bear market. Then the past two years stocks were higher in January and we saw back-to-back 20% years.

Historically speaking, when the first month was positive for stocks, the rest of the year was up 12.3% on average and higher 86.7% of the time. And when that first month was lower? It was up about 2.1% on average and higher only 60% of the time. Compare this with your average year’s final 11 months, up an average of 8.1% and higher 76.0% of the time, so clearly the solid start to ’25 could be a positive for the bulls. Lest you fear January has been too strong, a good start to January tends to see strong gains the rest of the year as well, as we discuss below.



Here’s another way of showing what tends to happen based on whether January was higher or lower. We know markets trend, but my oh my, what that first month does can really pick the direction for the full year.



With one day to go in January, the S&P 500 is up more than 3%, which has been a very good sign. Below we show all the times the first month of a new year gained at least 3% and you can see that continued outperformance is perfectly normal. The full year had and average gain of 21.3% and was higher nearly 93% of the time, which should have bulls smiling.



This year saw stocks lower during the historically bullish Santa Claus rally period, but then rallied the first five days of the year and now all of January. I looked more closely at a strong first five days in Some Good News For The Bulls, but what does it mean when we don’t have a Santa Claus Rally, but both the first five days and January are higher? Interestingly, this combo has happened only three other times in history, so we are dealing with a very small sample size. The good news is stocks were higher two out of three times with more than a 20% median return.



We’ve been bullish and expected the late December weakness to be fairly contained, and that has fortunately played out. The data in this blog does little to change our overall optimistic tone in 2025, but be aware that February can be a banana peel month (which I’ll discuss soon enough). For now, enjoy the January returns and have a great weekend!

Bullish 2025 Forecast on Track

2025 is tracking the bullish post-election trend so far this year. We are encouraged S&P 500 is up 3.2% despite the DeepSeek deep fake. Our January Barometer will be positive unless the S&P 500 drops 189.55 points today. As January Goes, So Goes The Year.

Gains this year will be tougher to come by and shallower than the past two years. Our 2025 annual forecast for 8-12% gain with a lot of chop and weakness in Q1 and Q3 is on target. Post-Election years have been much better in recent years but Q1 is a weak spot.

Expect more volatility and chop in the near term. February has been notoriously weak and even more so in post-election years. February is the worst month for S&P 500, NASDAQ and Russell 2000 in post-election years since 1950.

The Former Speaker Buys AI
Fri, Jan 31, 2025

Artificial intelligence continues to permeate throughout the economy, and one such example coming out of the Health Care sector is Tempus AI (TEM). Founded in 2015 and IPO'ing last June, TEM uses AI to analyze medical data in order to help provide diagnoses and treatment options for patients. As shown below, the stock saw a solid rally in the first couple of months after its IPO but quickly gave up those gains throughout the late summer and fall before a failed retest of those highs in November. By December, the stock had fallen through its 50-DMA and continued to erase any post-IPO gains. That is until the past couple of weeks. On January 14, the stock found a bottom which also happened to be the same day that House Rep and former Speaker of the House Nancy Pelosi purchased 50 call options in the stock that was later revealed in a disclosure on January 17. In reaction to the disclosure, the stock saw a one-day jump of 21.5%. There has been further follow through in the days since with the stock now back above its 50-DMA and at its highest level since early December. Since Pelosi's purchase, TEM has rallied more than 80% from the low $30s to the high $50s!



Pelosi (more specifically, Pelosi's husband Paul) has garnered a reputation as a successful trader in recent years as the trading activity of politicians has become increasingly scrutinized. Up to this point, most of Pelosi's trades have been in larger-cap names that didn't necessarily move when the disclosure came out. TEM is one of the first stocks we can recall that likely rallied significantly because of a Pelosi trade disclosure.

Unusual Whales has created two counterpart ETFs that are meant to track Republican Trading (KRUZ) and Democratic Trading (NANC) based on trading activity disclosures from members of Congress and their spouses. As shown below, the Democratic Trading ETF has outperformed SPY since the ETF's inception in early 2023 with NANC up 58.9% compared to a 46.6% gain in the S&P 500 (SPY). The Republican Trading ETF (KRUZ) has gained roughly 30%, which means it's up about half as much as the Democratic ETF. Based on these two ETFs at least, investors have recently been better off following the trading patterns of Democrats rather than Republicans in Congress.

February historically worst month for S&P 500 and NASDAQ in post-election years

February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not impressive. February ranks no better than sixth and has recorded meager average performance, with one exception, Russell 2000. Small cap stocks, benefiting from “January Effect” carry over in some years; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.1% in February since 1979, the sixth best month for that benchmark. Russell 2000 has had a challenging January this year with only brief hints of the “January Effect.” Without this typically bullish momentum, Russell 2000 could also continue to struggle this February.

February’s post-election-year performance has been wretched since 1950, ranking dead last for S&P 500, NASDAQ and Russell 2000. Average losses have been sizable: –1.3%, –3.0% and –0.9% respectively. February ranks tenth for DJIA in post-election years with an average loss of 0.8%. February 2001 and 2009 were exceptionally brutal. NASDAQ dropped 22.4% in February 2001, its third worst monthly loss ever. One minor reprieve from the longer-term gloom is all five indexes have advanced in the last three post-election year Februarys (2013, 2017, and 2021).

Not a subscriber? Sign up today to continue reading our latest market analysis and trading recommendations and get a full run down of seasonal tendencies that occur throughout each month of the year in an easy-to-read calendar graphic with important economic release dates highlighted, Daily Market Probability Index bullish and bearish days, market trends around options expiration and holidays. In addition, the Monthly Vital Statistics Table combines stats for the Dow, S&P 500, NASDAQ, Russell 1000 and Russell 2000 and puts them all in a single location available at the click of a mouse.

Year of the Snake? More Like Year of the Bear


“Bulls make money, bears make money, and pigs get slaughtered.” -Old Wall Street saying

We already had our New Year here in the United States, but the Chinese New Year begins today and with it brings the Year of the Snake. The snake is the sixth of the twelve-year cycle of animals that appear in the Chinese Zodiac. Although snakes don’t have a positive connotation in the US, in Chinese culture they have positive symbolism. For example, they are regarded as little dragons and the skin snakes shed is referred to as the dragon’s coat, symbolizing good luck, rebirth, and regality.

Although we would never suggest investing based on the zodiac signs, it is interesting to note that the Year of the Snake has historically been quite weak for stocks. We noted last year why horned animals tended to be bullish and that played out quite well last year with the Year of the Dragon .

The 12 zodiac signs appear in the following order: Rat, Ox, Tiger, Rabbit, Dragon, Snake, Horse, Goat, Monkey, Rooster, Dog, and Pig. Each sign is named after an animal, and each animal has its own unique characteristics. Someone born during the Year of the Snake tends to partner well with an Ox or Rooster, but things don’t mesh so well with Tigers or Pigs.

Since the Chinese New Year typically starts between late January and mid-February, we looked at the 12-month return of the S&P 500 starting at the end of January dating back to 1950. And wouldn’t you know it? The Year of the Snake has been up only three out of six times and up an average of less than 1%. Additionally, stocks have alternated between higher and lower since 1953, suggesting this could be a down year.



Here’s how all 12 signs have done since 1950. Historically, the snake is indeed the worst sign, with the Rooster the second weakest. Turns out the Year of the Goat has the strongest returns (maybe there’s something to that “greatest of all time” acronym), but you’ll have to wait till 2027 to see that one again. Next year is the Year of the Horse, which hasn’t been all that strong either. Lastly, we found it amusing that animals with horns saw some of the best returns, with last year’s horned Dragon a good one for the bulls. I did a little more research and it turns out that some snakes have horns, so maybe all hope isn’t lost just yet!



This is all in good fun and of course in no way should you invest based on zodiac signs. For more of our real-time thoughts on DeepSeek, AI, the tech collapse, and more, be sure to read what Sonu Varghese, VP Global Macro Strategist, had to say in DeepSeek: Did China Just Eat America’s Lunch?

DeepSeek: Did China Just Eat America’s AI Lunch?


DeepSeek, a small Chinese Artificial Intelligence (AI) startup, shook the AI world last weekend. In short, DeepSeek created an AI model that appears to be as powerful as the existing ones out there. And most importantly, they did it with much less money. DeepSeek’s AI chatbot also soared to the top of the Apple App store, overtaking OpenAI’s ChatGPT.



Until now, it looked like there would just be a handful of mega tech companies able to compete in the AI space: Microsoft-backed OpenAI (with ChatGPT), Alphabet (Gemini), and Amazon-backed Anthropic (Claude). The thinking was that only these companies had the immense technological and financial resources required. And subsequently, they would be able to monetize AI by charging users who wanted to use these proprietary, “closed source” AI platforms.

Well, DeepSeek just upended this.

The good news is that costs are likely going to be much lower for AI, which is likely to pull in a lot more users. But one person’s spending is another person’s revenue (and profits). So, falling prices means companies providing the AI infrastructure could potentially lose out. Of course, there’re huge open questions, including:

• Are the Chinese ahead of the US in AI?
• Do US firms continue to spend billions on capex (and chips)?
• Which firms are the winners and the who are the losers?

A Deep, But Not Broad, Sell-Off
The uncertainty over the answers to these questions led to a big selloff in tech stocks on Monday. The market seemed to think the companies providing the backbone of AI infrastructure are the immediate losers. Semiconductor stocks got hammered. NVIDIA shares fell 17.0%, losing almost $600 billion in market cap and going from the most valuable company in the world to 3rd place. Other semiconductor firms that lost out included Broadcom (-17.4%), Marvell Tech (-19.1%), and AMD (-6.4%).

Even power companies saw big pullbacks. Constellation Energy fell 20.9% — they inked their largest power purchase agreement with Microsoft last year, agreeing to restart the Three Mile Island nuclear plant to provide power to Microsoft for AI workloads. Talen Energy, which signed a deal to provide nuclear power to Amazon, fell 21.6%.

However, the sell-off was mostly confined to the technology and utilities sectors. A few large technology companies gained, including Apple (+3.2%), Meta (+1.9%), and Amazon (+0.4%). As you can see from this Finviz heatmap, there was a lot of green on the board. 350 stocks in the S&P 500 actually gained.



All said and done, this wasn’t a broad-based sell-off. Far from it. The S&P 500 fell because of its huge weight to NVDIA and Microsoft, but the Dow gained 0.65%. It goes to the point that DeepSeek likely makes widespread AI use even more likely, and perhaps sooner rather than later as the cost of AI infrastructure collapses. But let’s walk through DeepSeek itself, putting its announcement within the context of the global macroeconomy.

Who and What Is DeepSeek?
The company was founded by a quantitative trading firm in China, one of China’s largest (they had $15 billion of assets in 2015, but this dropped to $8 billion by 2021). The founder of the trading firm, Liang Wenfeng, went into AI research two years ago in May 2023 — apparently with 10,000 NVIDIA chips they had acquired by 2021, before export controls were imposed by the US. They also pulled together the smartest young Ph.D.s across China’s top universities.

DeepSeek has been releasing several large language models (“LLM”) over the last few years. These LLMs are what drive chatbots like ChatGPT. So, they didn’t “come out of “nowhere.” But on Christmas Eve last year (2024), they introduced DeepSeek-V3, which by itself was impressive as it matched ChatGPT & Gemini’s capabilities. They also released a key paper, highlighting how they built the platform using only a fraction of the chips the US AI companies use to train their models. DeepSeek used ~ 2,000 NVIDIA chips, whereas the big US firms use ~ 16,000 chips or more. DeepSeek said they needed only $6 million in raw computing power to train their new system, about 10 times less than what Meta spent building its latest AI model! Interestingly, the DeepSeek paper had a whopping 139 technical authors – that’s a huge technical team. This is not a tiny group working in a Chinese basement.

DeepSeek-V3 could do standard issue stuff, meeting benchmark tests, including answering questions, solving logical problems, and writing computer code. But earlier this month, OpenAI released OpenAI-o3. It’s designed to reason through math, science, and coding problems — something V3 could not do. But last week, on January 20th, DeepSeek released DeepSeek-R1, a significantly more advanced reasoning model, which impressed experts. That is what sent US investors into panic, albeit only after digesting the information over the weekend. Note that OpenAI is yet to release o3 widely, but it’s supposed to be very impressive — meaning America likely “hasn’t lost its lead” in AI. But things are close.

How Did DeepSeek Get Around Technological Constraints?
Under the Biden administration, the U.S. had limited Chinese companies access to advanced chips, though this started only in October 2023. Still, DeepSeek’s researchers had to get more creative, and use what they had more efficiently. And turns out they did. Here’re a couple of examples.

Traditional AI models rely on supervised fine-tuning, whereas DeepSeek uses reinforcement learning, i.e. models learn through trial and error, and self-improve (incentivized by algorithmic rewards). This is similar to how humans learn from experience, by interacting continuously with others and their environment, and receiving feedback. This allows development of reasoning abilities and better adaptation.

DeepSeek uses something called “mixture of experts” (MoE) architecture, activating only a limited fraction of parameters to solve a given task. Think of a team of experts, with different specialties. When asked to solve a task, only relevant experts are used. Which is essentially what DeepSeek does, leading to significant cost savings and better performance.

These relatively creative approaches (amongst others) reduced computational resources needed for training. Leading to much lower costs. Contrast all this to brute-force scaling that typically occurs at American companies, mostly because they can afford to, as vast resources are available (money and chips).

DeepSeek is also open source, without licensing fees, leading to community-driven development. Developers can access, modify, and deploy DeepSeek models for free, promoting wider adoption of the models. And it also allows for transparency and accountability.

Some highlights of DeepSeek

• It’s open source, with the goal of eventually giving everyone access to Artificial General Intelligence (AGI). They’re the only advanced AI team releasing cutting-edge research
• The chatbot is free, with no ads, and it appears to be as good as the other chatbots
• It allows you to see how it’s “thinking” as it gives you an answer. Not to mention it helps you understand, and trust, the answer more. It also helps you tailor your queries and get to better results
• The API pricing is lot lower than competitors. The R1 API costs $0.55 per million input tokens (versus $15 for ChatGPT) and $2.19 per million output tokens ($60 for ChatGPT).

What Next?
At the end of the day, you still want to have more chips than less, since it’ll allow for faster utilization and inference. Also, the wider use case of AI, as costs plunge, could lead to more demand. This is called as “Jevon’s Paradox”. When technology advances, it makes a resource much more efficient to use. But as the cost of the resource drops, demand increases, causing resource use to increase. In fact, Microsoft’s CEO, Satya Nadella, tweeted this after the DeepSeek news, saying as AI is commoditized, we’ll need much more of it (some of this could also be cope).



What could end up happening is even more capex spending on AI, including on chips. In which case stock prices for chip companies that got hammered should recover, although the timing of demand could be different. But at this point, it’s likely too early to tell. Also, a lot of companies aren’t just selling the AI infrastructure. Companies like Apple, Amazon, and Meta are potential users of AI. These companies will likely benefit from the lower cost of AI.

Ban DeepSeek?
As I noted above, DeepSeek is open source. Which means it cannot be banned, unlike something like TikTok. Of course, the chatbot that surged to number 1 on the Apple app store can be banned. But the DeepSeek API can be downloaded and run “locally” on one’s own computer, or be accessed via API. Which is why the “gotcha” questions folks have been asking DeepSeek are irrelevant. DeepSeek chatbot doesn’t provide answers to questions about Tiananmen Square and other issues disfavored by the Chinese government. But this is just the chatbot, and that’s subject to Chinese censors. As Joe Weisenthal at Bloomberg pointed out, the open source version of DeepSeek that you can download and run is not censored — you can ask it whatever you want.

China Is a Tech Powerhouse, That’s Already Eaten Everyone Else’s EV Lunch
There’s a notion that China is a central command and control economy, and puzzlement about their technological prowess. But this hides some important details about how China works. The central government, and CCP (Chinese Communist Party), certainly has a lot of say in the economy. But it’s mostly via setting targets for spending, and even GDP, which is why GDP growth in China is an “input,” as opposed to an output, of natural economic activities. Especially important is the fact that the government facilitates this with “industrial policy,” including significant subsidies and cheap state financing for entire sectors like hi-tech manufacturing. This is combined with protectionist policies that prevent foreign competition.

However, at the ground level, competition for the money is intense. A good example is the electric vehicle industry, which has benefited from massive subsidies from the Chinese state, giving domestic firms a massive leg up over Western companies that don’t benefit from subsidies. Yet, there are over 100 EV companies intensely competing with each other. A true market economy wouldn’t be able to support them all. But generous government funding supports them, allowing scalability. While also dropping costs significantly.

China’s subsidies also went toward building out the local supply chain, and so Chinese companies don’t rely on imported parts. Chinese EV juggernaut, BYD (which Warren Buffet has a stake in), has a mostly local supply chain that gives it a big leg up. Even for Tesla, 90% of the parts for its Shanghai factory are sourced from within China.

I’ve previously written about how China has taken over the global auto manufacturing sector in under 5 years. China exported 6 million cars in 2024. It was under 1 million 5 years back in 2019.



China now has enormous capacity to produce cars — over 40 million internal combustion engine (ICE) cars a year, and about 20 million electric vehicles (EVs) by the end of 2024. This means China has the amazing capacity to supply over half the global market for cars. Globally, about 90 million cars are sold a year.

Brad Setser (an economist at the Council of Foreign Relations) points out that China has nothing close to this level of internal demand. The internal market is about 25 million cars, and it’s not growing. Interestingly, domestic EV sales are rising rapidly (expected over 15 million next year). And as a result, ICE vehicle capacity is geared to exports — especially to Europe and other EMs (the US and India are notable exceptions because of tariffs imposed on Chinese vehicles). And China’s massive overcapacity is a revolution for the global manufacturing and auto industry.

What Exactly Is the China Threat
Real GDP growth clocked in at 5% in 2024 for China, right at the government’s target. But make no mistake, this is a slowdown and the underlying details aren’t pretty. Retail sales, a proxy for consumption, was up just 3.7% in 2024, well below the pre-pandemic pace of 8%. On the other hand, subsidies for the manufacturing sector led to industrial production rising over 6.2% in 2024, matching what we saw pre-pandemic.

China essentially has 3 solutions to its underlying economic slowdown

• One, accept it and the lower employment it brings, but this also brings political peril
• Two, recharge the crashing property sector with debt, but they’re reluctant to do this
• Three, promote the industrial sector and boost exports, while limiting imports, which is what they’re doing

Chinese exports grew by 6% in 2024, but imports rose just 1%. As a result, the trade surplus has surged by a whopping 21%, to almost $1 trillion. In short, China is selling stuff to the rest of the world all over the world. But they’re not buying goods in return (a lot of these are EV exports). It also tells you that globalization has not really declined over the last several years. The world is even more reliant on Chinese supply today than 5 years ago, before Covid.



The problem is that China’s policies impact trade partners in a “beggar-thy-neighbor” way. Chinese over-production leads to a collapse in price, threatening profits for companies abroad, let alone the manufacturing industry in other countries. Global manufacturing may remain in a funk due to Chinese overcapacity, along with continued subsidies for the Chinese industrial sector. And manufacturing-dependent economies in particular will continue to struggle. A good example of this is happening now with the German auto industry.

Focus On the Big Picture
Manufacturing is not a big part of the US economy. But China could be coming for US tech now. DeepSeek’s advances shows that China’s advancement is a threat to US technology companies. And tech is an important industry for the US, not least because it matters for the stock market (more so because of current levels of concentration), and household balance sheets which have strengthened partly on the back of stock market gains (as we wrote in our Outlook 2025).

But US companies are not out of the game. Not by a longshot. As I mentioned earlier, you’d still rather have more chips than less. And the closed nature of US companies means we don’t know the extent of their AI advances. OpenAI and Google may not have released their “latest and greatest” models to the public. Famed venture capital investor Marc Andreeson noted on X that DeepSeek-R1 is AI’s Sputnik moment. I disagree. When the Russians launched Sputnik in 1957 (earth’s first orbiting artificial satellite), America was well behind the curve. But it caught up in a year (launching Explorer 1 in 1958). Now, it’s actually the Chinese who appear to have caught up.

A lot of the focus right now is on the winners and losers within the context of DeepSeek’s release. That’s a tough game to play, and thankfully one that we don’t really have to — the market will figure it out. The big picture is that AI is now going to diffuse into the economy much faster, thanks to lower cost. If anything, US companies are likely to ramp up spending on AI even more and recall what I said about one person’s spending being another person’s revenue and profits. That’s ultimately going to be a good thing for the economy, and productivity too. A huge ramp-up in capex can lead to potential problems down the line, but I’ll focus on that another day.

I get the question about “how to invest in AI” all the time. There’s plenty of good managers out there (including at Carson) that focus on that. But the reality is that tech (and tech-adjacent) companies make up a significant portion of the broad S&P 500 index (close to 35-40%). That’s a pretty big bet right there, and the question is whether you want that big of a focused bet, let alone whether you want to add to it.

Even before the DeepSeek news that led to the Monday selloff, there was a good case to be made for diversifying within equities, into areas like mid/small cap stocks and sectors outside tech, to reduce concentration risk. We wrote in our 2025 Outlook that we expect the bull market to broaden out this year based on the fundamentals of the economy and policy opportunities. Our view was that there’s good reason to diversify outside of Tech even prior to this latest news (we’re neutral on tech, not underweight). There’s nothing that’s changed that outlook, and if anything, what’s happened this week has perhaps solidified it.

New York Home Prices on Top
Tue, Jan 28, 2025

Updated home price data from S&P CoreLogic Case Shiller was published this morning through the month of November 2024. Below is a summary table of key results across the 20 cities/regions tracked by Case Shiller.

Most cities saw home prices decline month-over-month from October to November, with San Francisco and Seattle down the most at roughly -0.75%. Boston, Miami, and New York were the only cities that saw meaningful gains month-over-month.

Over the prior year, 19 of 20 cities were up, with Tampa the only city down at -0.37%.

New York ranks first when it comes to year-over-year price gains at +7.32%.

After a major jump in home prices in the immediate aftermath of the pandemic, we saw a small dip in 2022 and 2023 when risk assets sold off hard. Since early 2023 lows, New York is also the city that has seen home prices jump the most at +16.76%.

Additionally, New York is now the only city where home prices are currently at all-time highs. On the flip side, San Francisco, Seattle, and Denver are all down more than 5% from all-time highs.



Below is a historical look at Case Shiller home prices for the 20 cities tracked along with the composite indices. We've highlighted New York in green because it's the only city where prices are at all-time highs.









A Discerning Sell-Off
Tue, Jan 28, 2025

In listening to discussions over the market's reaction to the DeepSeek sell-off yesterday, the term "shoot first, ask questions later" came up repeatedly. However, in looking at the performance of various indices and individual stocks yesterday, the market's behavior looked more discerning than indiscriminate. At the individual stock level, most stocks in the S&P 500 finished the day higher, and the weakness was concentrated to stocks that have benefitted the most from the AI rally.

The chart below shows yesterday's performance of major US index ETFs. As you would expect, the Nasdaq 100 with its concentration in technology was the hardest hit, falling by close to 3%. The cap-weighted S&P 500 (SPY) also declined more than 1% given its large weighting in Nvidia (NVDA) and other tech companies. The equal-weight index (RSP), however, finished the day in positive territory with a modest gain. The one index where performance was not as we expected was in small caps where the Russell 2000 (IWM) also fell nearly 1%. On a day when mega-cap tech was crushed but the majority of large-cap stocks rallied and interest rates declined, we would have expected small caps to show more strength. Given the entire Russell 2000 is smaller than NVDA, it doesn't take much to get this area of the market to rally. Also, if DeepSeek means that the previous costs associated with adopting AI are now dramatically lower, shouldn't that be good for small caps which presumably have smaller budgets?



Looking at the performance of these major index ETFs over the last week, outside of QQQ, they're all still positive, even after Monday's decline. Additionally, they're also all trading right within the confines of their normal trading ranges (none are oversold or overbought) which is a level of homogeneity that it feels like we don't see much these days.



The Russell 2000's lack of a rally came within the context of a week-long period where IWM has been unsuccessfully attempting to break back above its 50-DMA. Yesterday marked the fifth straight day where it tested that level but failed to close above it.



The mid-cap ETF (MDY) finished well off its intraday high yesterday and also traded below its 50-DMA but managed to close the day just barely above that level.



The 50-DMA also acted as support for the S&P 500. After opening right at that level in the morning, the large-cap benchmark bounced throughout the session and finished at the highs of the session.



The chart of the Equal Weight S&P 500 (RSP) over the last few days looks similar to small caps with a tight range. The only difference is that, unlike IWM, RSP has closed above its 50-DMA for each of the last four trading days.



Finally, the Nasdaq 100 (QQQ) was the biggest pain point of the major indices. It started the session below its 50-DMA and made an attempt to rally back above that level intraday but came up just short by the time the closing bell rang. While QQQ failed to take out its December high in last week's rally, it did manage a higher high, and as long as yesterday's decline doesn't see much in the way of follow-through, it isn't in imminent danger of a lower low in the short-term.

Post-Election Year Q1 Weak Spot Volatility Happens

China’s DeepSeek AI panic is just another trigger for a market selloff in the Q1 weak spot of Year 1 of the 4-Year Cycle. Following the solid gains of typical pre-election and election years, the flat to mildly negative Q1 of post-election years is a notable transition. Breaking the 4-year cycle down by quarterly performance in this bar chart gives a clear view of Q1-post-election-year weakness.

Potential reasons for this lull in the 4-year cycle are numerous, but the uncertainties of a new administration coming to Washington, D.C. are high on the list. The obvious reset of the cycle is a strong possibility. Two years of solid gains, fueled by election spending, result in elevated market valuation. This combination of big gains and an uncertain outlook has led to profit taking in the past and it is playing a role now. Not to mention economic, geopolitical, and monetary policy concerns.

But prospects for 2025 remain encouraging. Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period. Despite today’s selloff my Base Case 2025 Forecast scenario is still the most likely with full-year 2025 gains of 8-12%. But gains are not as likely to be as free flowing as they were over the past two years and volatility is likely to remain elevated.

AI Infrastructure Stocks Drop
Mon, Jan 27, 2025

The Nasdaq is down well over 3% as of this writing with AI hardware names driving the declines. The main AI infrastructure stock -- NVIDIA (NVDA) -- is down roughly 20% over the last two trading days, which equates to a drop of nearly $700 billion in market cap! Amazingly, news that DeepSeek out of China had built a ChatGPT-like product for a fraction of the cost was actually circulating weeks ago at the end of last year. It wasn't until this weekend, though, that the ramifications of this news started being debated heavily on social media platforms like X.

Our AI Basket is a set of 50 stocks with exposure to the AI Boom. The headline basket is further broken down into two sub-baskets: the Infrastructure basket and the Implementation basket. The former is comprised of stocks whose hardware and software lay the foundation for AI to work. These include companies that make semiconductors, data centers, cloud storage, and more. The Implementation basket, on the other hand, is made up of companies whose products are more oriented towards end-users of AI. This includes stocks with products like AI augmented software, copilots, automated services and the like.

Although AI stocks are down broadly today, it is the Infrastructure basket that has been hit the hardest. With DeepSeek's supposed low-cost to build its latest ChatGPT-like offering, it has brought into question the necessity for massive capex spend on chips and datacenters, and our AI Infrastructure sub-basket is down an incredible 8.2% on the day as a result! That compares to only a 1.5% decline in our Implementation sub-basket. As shown below, since the start of our AI Baskets a little over two years ago, this is easily the worst day for our Infrastructure basket relative to our Implementation basket to date, and it isn't even close. In tonight's Closer, we will provide a further look into the performance of the AI baskets in the wake of the DeepSeek discussion.

 

Here are the percentage changes for the major indices for WTD, MTD, QTD & YTD in 2024-



S&P sectors for the past week-

 

Here are the current major indices pullback/correction levels from 52WK highs as of week ending 1.31.25-


Here is also the pullback/correction levels from current prices


Here are the current major indices rally levels from 52WK lows as of week ending 1.31.25-

 

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Here are the upcoming IPO's for this week-

 

Stock Market Analysis Video for January 31st, 2025
Video from AlphaTrends Brian Shannon


ShadowTrader Video Weekly 2/2/25
Video from ShadowTrader Peter Reznicek

 

StockBoarders! Come join us on our stock market competitions for this upcoming trading week ahead!-

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StockBoards Weekly Stock Picking Contest & S&P Sentiment Poll (2/3-2/7) <-- click there to cast your weekly market direction vote and stock picks for this coming week ahead!

Daily S&P Sentiment Poll for Monday (2/3) <-- click there to cast your daily market direction vote for this coming Monday ahead!

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It would be pretty sweet to see some of you join us and participate on these!

I hope you all have a fantastic weekend ahead!

 

And finally here is the most anticipated earnings calendar for this upcoming trading week ahead-
($PLTR $AMD $AMZN $GOOGL $PYPL $UBER $F $SNAP $QCOM $SPOT $DIS $ARM $LLY $CMG $SYM $KD $PFE $ENPH $RBLX $ELF $REGN $NET $NVO $AFRM $AMSC $PEP $PTON $FTNT $COP $VKTX $RBB $CLX $DOC $SAIA $ORLY $RACE $NXPI $TSN $MCHP $AMGN $MRK $HSY $EL $PINS $EA $VCTR $PI $QNR $EPD $BRBR)


If you guys want to view the full earnings post please see this thread here-

• Most Anticipated Earnings Releases for the week beginning February 3rd, 2025 <-- click there to view!

 

Top of the morning StockBoarders! Happy Monday to all of you and welcome to the new trading week and month and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are under an hour into the US cash market open.

GLTA on this Monday, February the 3rd, 2025!

 

Here are today's economic calendar events:

 

Here are today's analyst stock upgrades & downgrades:

 

Here are this morning's pre-market earnings results:

 

Morning Lineup -- 2/3/25
Mon, Feb 3, 2025

Last Monday it was DeepSeek, this Monday it's tariffs that have US equity futures trading down 1-2% ahead of the open. With President Trump ordering tariffs on imports from China, Mexico, and Canada over the weekend, below are price charts of ETFs covering these three countries plus the US (SPY). We include where each ETF is currently trading in the pre-market so you can see how big this morning's declines are relative to the last six months of action. Yes, all four are set to open quite a bit lower, but all four will also still be above their lows seen over the last month or so. Mexico (EWW) is the only ETF of the group that will be near six-month lows if it opens at current levels.

 

Here is a final look at today's market and futures maps, as well as how each sector performed individually at the close on Monday, February 3rd, 2025.

 

Here are the economic calendar events for the full month of February 2025:

 

Top of the morning StockBoarders! Happy Monday to all of you and welcome to the new trading day and a frrrrrrrrrrrresh start. Here is a quick check on those futures as we are under an hour into the US cash market open.

GLTA on this Tuesday, February the 4th, 2025!

 

Here are today's economic calendar events:

 

Here are today's analyst stock upgrades & downgrades: