January 28th Market Overview

Happy Tuesday.

We had a strong bounce off yesterday's AI mania selloff. The market found its footing despite Tech uncertainty around DeepSeek, with $BABA now jumping into the AI race this afternoon with their own version.

All eyes on Mag 7 earnings this week - the real test for whether this AI panic has legs (I don’t think it does) First Fed meeting of 202 tomorrow. Tech's recovery today suggests the market hasn't lost its appetite for risk.

P.S. I know A.I. is super hyped right now and some of it is fluff, if you want a practical resource on how it can actually help your work and productivity check out this write up. 

Let's dig in...

Executive Summary

• Market breadth shows underlying strength despite Monday’s tech rout, with more stocks advancing than declining
  

• DeepSeek surpasses OpenAI as most-downloaded free app on Apple’s App Store, reshaping AI landscape
  

• $NVDA climbs ▲7.78% after suffering largest single-day market value loss in U.S. history yesterday
  

• Gene Munster of Deepwater Asset’s shifts focus to sub-$500B market cap tech companies amid AI uncertainty
  

• Durable goods orders decline 2.2% in December, marking fourth drop in five months

Market Overview

Key Market Drivers

1. DeepSeek Disruption:

• Open-source model built for under $6M challenges traditional AI cost structure

• Bernstein identifies potential winners in data infrastructure ($CFLT), identity ($OKTA), observability ($DDOG)

• Market reassessing value of AI infrastructure investments

2. Trump Policy Impact:

• Proposes ending federal income tax, citing 1879-1913 economic model

• Plans universal tariff “much bigger than 2.5%” targeting chip and pharmaceutical producers

• Confirms $MSFT discussions regarding TikTok acquisition

3. Earnings Momentum:

• $GM North America EBIT ▲13% YoY to $2.27B despite missing estimates

• $BA commercial airplanes revenue ▼55% YoY, operating margin at -43.9%

• $RTX beats with $1.54 EPS vs $1.38 est on $21.62B revenue

4. Market Structure Shift:

• Barclays notes healthcare sector trading at bottom-quartile valuations despite improving fundamentals

• BTIG warns of “significant damage” to tech’s relative trend

• Information technology leads despite 70% of S&P 500 components declining

Stock Spotlight

• $NVDA: Rebounds ▲7.78% after $600B market cap loss. Morgan Stanley cuts PT to $152, warns of AI spending deflation. Braid counters: "GPU evolution remains hardware-driven"

• $GM: Q4 revenue ▲11% to $47.70B, EBIT ▲43% to $2.51B. Shares fall ▼9.40% on tariff uncertainty. FY25 EPS guide $11-12 vs $10.60 est

• $BA: Q4 loss $5.90/share vs $1.74 est. Commercial revenue ▼55% to $4.76B. Defense hit with $1.7B charges

• $RCL: Q4 EPS $1.63 vs $1.50 est. FY25 guide raised to $14.35-$14.65 vs $14.32 consensus

Market Leaders Watch

• $META: Citi PT $753. DeepSeek validates $60-65B CapEx for GenAI development across search, agents, enterprise

• $MSFT: UBS maintains $525 PT, supports pivot to inference infrastructure. In talks for TikTok acquisition

• $CRWD: New all-time high ▲9.68%. Cybersecurity sector rallies: $PANW ▲3.6%, $ZS ▲7%

• $AMD: Melius downgrades to hold, PT cut to 129. Cites x86 server market concerns, unrelated to DeepSeek

Corporate Developments

• $JBLU: Worst day on record ▼26%. Projects 7% cost increase for 2025, Q1 revenue may fall 0.5%

• $PYPL: Keybanc expects conservative FY25 guidance, mid-single-digit margin growth

• $SOFI: Needham PT to $20 from $13. Cites Treasury Direct program, co-brand partnerships

• $MNMD: Evercore initiates outperform, PT $23 vs current $6.30. Focus on anxiety, depression treatments

• $CIEN: JPM upgrade to overweight, PT $88. Limited impact from AI supplier reactions

• $VRT, $ETN, $TT: Melius downgrades all to hold, cites PE ratio concerns despite solid results

Sector Watch

Bond Market Updates

• Treasury yields steady pre-Fed meeting. Market prices 98% probability of unchanged rates

• Key focus: Powell's commentary on 2025 rate cut timeline

• December durable goods ▼2.2%, fourth decline in five months

• Orders ex-transportation ▲0.3%. Non-defense aircraft orders ▼45.7%

Policy Watch

• Bessent confirmed as Treasury Secretary (68-29 vote). Proposes 2.5-20% universal tariffs

• Trump policy proposals:

  • End federal income tax

  • Universal tariffs targeting chip, pharma producers

  • TikTok-$MSFT deal discussions amid potential ByteDance divestment

• Key Regulatory Updates:

  • 800+ drug price increases, median ▲4%

  • HSBC exits investment banking in Europe, UK, Americas

  • Ex-BOJ member expects June/July rate hike

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What to Watch

1. Fed's First 2025 Meeting:

• Markets price 98% chance of rates holding at 5.25-5.50% range

• Focus on Powell's response to 4% median drug price increases

• Gene Munster warns: "Near-term chinks in the armor for Mag 7 stocks could influence Fed's outlook"

• Barclays: Healthcare sector may benefit from any tech weakness

2. Critical Tech Earnings:

• $META, $MSFT, $TSLA, $AAPL report this week amid DeepSeek concerns

• $MSFT earnings call key for AI infrastructure spending plans after UBS validates inference pivot

• Citi: $META's $60-65B CapEx plans face scrutiny after R1's efficiency claims

• Bernstein highlights potential beneficiaries: $CFLT, $OKTA, $DDOG, $TWLO, $NET

3. DeepSeek Market Impact:

• Open-source model built for $6M challenges traditional AI cost structure

• Morgan Stanley: Could be "deflationary" for AI infrastructure spending

• Trump: "Wake-up call for U.S. industries to compete"

• Larry Benedict: "More of a China-U.S. issue than people think"

4. Policy Ripple Effects:

• Bessent's 2.5% universal tariff plan details expected this week

• $GM CEO Barra: "Multiple playbooks" ready for various tariff scenarios

• Honda's $30K EV plan tests U.S. manufacturing incentives

• HSBC's investment banking exit signals global restructuring trend

5. Sector Rotation Watch:

• Healthcare outperforming in January, up 10.3% MTD

• Tech leadership showing "significant damage" per BTIG

• Wolfe Research: "Most investor darlings still not oversold"

• Crypto miners extend losses: $CORZ ▼7%, $IREN ▼6%

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