DeepSeek AI: Investors initially reacted strongly to DeepSeek AI’s recent announcement, leading to significant volatility in AI-focused stocks. In our opinion, this was likely an overreaction to the news. If DeepSeek AI’s claims of significantly lower costs are true, it signals a positive step for AI accessibility rather than a threat. Additionally, there is a strong probability that DeepSeek AI is obscuring its access to advanced chips or computing power to avoid U.S. export controls. The sector rebounded swiftly, suggesting investors are reassessing the initial reaction.
Fast paced policy shifts: The Trump administration has moved swiftly with a series of policy actions that are directly influencing market conditions. Key developments include the administration’s interactions with the Federal Reserve, new tariff proposals, and the looming risk of a government shutdown. With Congress working on a major reconciliation package in a single bill, as preferred by President Trump, legislative uncertainty remains high. Investors are watching how these factors will influence economic growth, inflation and market stability.
Corporate earnings: The Q4 earnings season has started strong, with initial reports showing that 80% of S&P 500 companies have exceeded analyst expectations. The current earnings growth rate stands at 12.7%, the highest in three years. Financials and technology are leading the charge, though revenue beats have been less robust. Analysts expect solid growth to continue into Q1 and Q2 2025, though valuations remain elevated relative to historical norms.