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New Kid on the Block:
Major Index Performances (as of close Thursday):
- S&P 500: The benchmark index dropped (-.41%)
- Dow Jones Industrial Average: The Dow Increased 1.03%
- Nasdaq Composite: The index is down (- 1.36%)
- Gold: The Precious metal is up 2.62%
DeepSeek threat to the AI market: Many years ago, when my wife Haley and I planned to build our home in Charlotte, we would attend the Homearama event annually. This was an event where luxury home builders would showcase their offerings in select neighbourhoods. It was in one of those luxury homes that I first saw a Plasma Flat Screen Television. Admittedly, I was not very impressed with the quality of the picture and did not feel it was worth the whopping $15,0000 price tag. Fast forward to the present time, and you can pick up purchase a very nice 75-inch flat screen at Best Buy for less than $600. Technology is continuously getting better and more efficient, but when a little-known start-up from China, which was founded less than two years ago with just $6 million, released an AI platform on par with OpenAI’s Chat GPT, it sent shockwaves through the market.
Nvidia, which has been the AI bellwether is down 16.5% over the last 5 days. Other AI stocks, Broadcom, Oracle, and Microsoft are also down significantly. It’s still too early to know the full impact DeepSeek and other AI companies will have on the market, but it does bring into question the dominance of Mega Tech companies and their effect on AI, and the economy.
Earnings Season in full stride: As of this writing 152 of the S&P 500 have reported earnings, with 77% of them beating expectations. The expectations were set high going into the year, and those who have beaten expectations have been rewarded, (IBM up 12%), and those that missed have been punished (UPS down -14%).
With the current volatility in Technology, we believe there will be a rotation to value stocks. We have already seen moves in several healthcare and consumer defense stocks. Investors historically flock to quality in times of uncertainty, and though there was much exuberance last week after the inauguration, it did not take long for volatility to return.
The 10-yr Treasury yield has continued to decrease after peaking on Jan 14th. The federal reserve decided to keep interest rates at their current level hawkish. In our opinion, the 10-year rate will continue to hover above 4.5% and could approach 5% later this year. The markets finished the month positive, could this be a foreshadowing of the year to come? Only time will tell.
Have a wonderful weekend.
Your OmniStar investment team
