What Happened Last Week
- DeepSeek Dip: Tech stocks plunged due to fears of overinvestment in AI infrastructure following DeepSeek’s model release.
- Trump Tariffs: Tariff threats on Canada, Mexico, and China late last week drove equity volatility, which continues today in a highly fluid situation.
- Dollar Strength: A dovish cut from the ECB and weak European data did not translate into underperformance for international equities.
What We’re Watching This Week
- Tariffs: Expect lots of headlines, but our focus remains on the responses to Trump’s demands and possible retaliation measures.
- Earnings: Week 4, the second largest, features key reports from GOOG, AMZN, and major pharma.
- Jobs and Eco Data: NFP Friday, job openings Tuesday, and ISM surveys may be overshadowed by broader events.
Investment Management Team’s Views
Last Monday, the release of China’s highly capable and extremely cheap DeepSeek “R1” AI reasoning model catalyzed the steepest daily decline in mega-cap tech stocks since the December Fed meeting. Retail dip buying and optimism surrounding plummeting AI costs spurred a recovery from Tuesday onward, especially in software names most exposed to AI monetization. Strong earnings from Meta and Apple stemmed mega-cap losses, while a shift toward value, dividends, and small caps supported the broader market. International stocks traded well again last week, outperforming U.S. large-caps despite a rally in the dollar. Weak economic data and a dovish rate cut from the European Central Bank (ECB) contributed to the move lower in the Euro. The Fed also met last week; they held rates steady and largely succeeded in staying out of the limelight in a busy week.
Tariff headlines roiled investors toward the end of last week, and Trump’s firm stance over the weekend on Canada, Mexico, and China, our three biggest trading partners (~45% of total imports), led to a sharp repricing in markets in early trading. Early reports of a delay in the tariffs on Mexico have helped sentiment recover, but the potential economic impact is still huge and much larger than what we saw in the 2018-19 Trade War. Consensus expects that these trade measures are merely a negotiating tactic, but we aren’t so sure that it will be all over so quickly. Fast-moving tariff developments will likely keep volatility elevated this week.
While tariffs are likely to suck up most of the oxygen in the room this week, there are plenty of other top-tier market catalysts on the calendar. Google (GOOG), Amazon (AMZN), and key pharmaceutical companies will report earnings. On the economic front, Friday’s Non-Farm Payrolls (NFP) report, Tuesday’s job openings data, and ISM surveys are all on the radar important to the growth outlook.
