January 27th Market Overview

Happy Monday.

We are wrapping up the last week of the new year.

Big red on the board today mainly led by broad tech selloff today after DeepSeek's open source AI project released as a serious competition in the space. Defensive sectors and healthcare names (essentially the entire Dow) provided market stability. To me this is sector panic but doesn’t seem like an unhealthy market environment trigger or anything excessive.


On a lighter note…. the Motley fool says “this tech could be worth 34 Amazons by 2037”

Hm, we will have see about that.

Let's dig in...

Executive Summary

• Chinese AI startup DeepSeek's $6M model outperforms OpenAI in testing, challenging U.S. firms spending billions on AI development
  

• Investors rotate from high-growth tech to defensive sectors as DeepSeek raises questions about massive AI infrastructure investments
  

• VIX surges 45% to 21.56, marking highest volatility spike of 2025 as market processes AI competitive landscape shift
  

• Critical week ahead with 'Magnificent Seven' earnings ($META, $MSFT, $TSLA, $AAPL) and Fed's first 2025 policy meeting

Market Overview

Key Market Drivers

1. DeepSeek AI Shock: Chinese startup's $6M model requires less computing power and data than Western counterparts, threatening AI infrastructure investments
   

2. Defensive Pivot: First major tech selloff of 2025 drives capital into consumer staples, healthcare, and utilities
   

3. Technical Warning Signs: $NVDA breaks below 200-day moving average for first time since 2022, semiconductor index follows
   

4. Flight to Safety: Treasury yields hit one-month low at 4.50% as uncertainty pushes investors toward government bonds

Stock Spotlight

• $NVDA: ▼ 17.3% to $118.06, erasing $200B in market value and losing world's most valuable chip company title

• $AVGO: ▼ 17.4%, questions mount about high-performance chip demand for AI infrastructure

• $AAPL: ▲ 3.2%, reclaims world's largest market cap as investors seek quality tech exposure

• $VST: ▼ 28.3%, AI data center power demand outlook weakens after DeepSeek's efficient model reveal

Big Name Updates

• $MSFT: ▼ 2.1%, concerns over billions invested in AI infrastructure ahead of Wednesday earnings

• $META: ▲ 0.8%, Guggenheim raises price target to $750, defends AI investment strategy

• $AMZN: ▼ 1.0%, hyperscaler spending plans under scrutiny after DeepSeek efficiency claims

• $CRM: ▲ 1.2%, software names outperform hardware as AI efficiency concerns spare application layer

Other Notable Company News

• $CEG: ▼ 21%, largest nuclear operator faces record decline on AI power demand reset

• $TNL: ▲ 2.3%, Bank of America sees double-digit EPS growth in resilient leisure travel market

• $OKLO: ▼ 21%, nuclear power startup caught in AI infrastructure selloff

• $ARM: ▼ 11%, chip designer faces pressure as industry questions AI computing requirements

Today’s Sponsors -

You missed Amazon. You don't have to again.

Amazon, once a small online bookstore, grew into a global behemoth, transforming industries along the way. Now, imagine yourself at the forefront of the next revolution: AI. In The Motley Fool's latest report, uncover the parallels between Amazon's early trajectory and the current AI revolution. Experts predict one of these AI companies could surpass Amazon's success with market caps nine times larger. Yep, you read that right. Don't let history repeat itself without you. Sign up for Motley Fool Stock Advisor to access the exclusive report.

Sign up today

Sector Watch

Bond Market

The 10-year Treasury yield hit 4.50%, a one-month low after dropping 12 basis points. The move marks 2025's largest single-day decline as investors seek safety from tech volatility. Haven currencies like the yen and Swiss franc rallied on the risk-off sentiment.

Policy Watch

The Fed begins its first 2025 meeting tomorrow with a 99% market probability of unchanged rates. CFRA projects two cuts this year - Q2 and Q4. President Trump's weekend tariff confrontation with Colombia, though quickly resolved, signals more trade actions ahead. Capital Economics warns this emerging trade policy could complicate the Fed's inflation management.

What to Watch

1. Big Tech's Reality Check: $AAPL, $MSFT, $META, $TSLA report this week

• Guidance on AI infrastructure spending after DeepSeek shock

• $META Wednesday and $MSFT Thursday set early tone

• Focus on tech giants' response to lower-cost AI competition

2. Fed's First 2025 Move: Policy meeting concludes Wednesday

• CFRA forecasts cuts in Q2 and Q4 despite steady rates tomorrow

• Watch Powell's comments on trade policy impact on inflation

• Market positioning ahead of announcement could drive volatility

3. DeepSeek's Market Impact: Chinese AI model disrupts status quo

• Currently tops Apple's App Store downloads

• Claims of $6M development cost vs industry's multi-billion investment

• Watch for U.S. tech infrastructure spending adjustments

4. Defensive Leadership Test: Rotation gains momentum

• Healthcare ($XLV ▲ 2.02%) and Consumer Staples ($XLP ▲ 2.80%) lead

• Traditional tech safe havens like $AAPL show strength

• Monitor bond yield correlation with defensive performance