1/27/25 - Chinese Black Swan Spotted On Wall Street.
DeepSeek released a powerful artificial intelligence program that it claims cost just $5.6 million to build, marking a possible paradigm shift from the massive levels of investment by technology industry giants in energy and AI infrastructure.
This freaked out shareholders of AI hardware and energy supplier companies, cause panic selling and 15-30% losses in big names. On the flip side of the coin, enterprise software firms that integrate AI were lifted with hopes of cheaper AI that will improve the bottom lines (e.g. CRM, NOW, HUBS) Others like META and SPOT made nice moves up as money rotated quickly.
The Naz finished down 3.1% at 19,341, marking its biggest drop in a single session since the 3.6% plunge suffered on Dec. 18 and also finished below its 50-day line for the first time in just over a week.
Gains in non-tech areas helped buffer the S&P 500’s slide as the large-cap index fell 1.5%. The Russell 2000 lost 1%, or only a third of the Nasdaq’s decline. And the 30-stock Dow Jones Industrial Average rallied nearly 0.7%. Volume was up on major markets resulting in a new distribution day, that replaced one that dropped due to age today.
The S&P managed to stay above the 6000 mark, but the naz finished near the lows of the day.
The yield on the benchmark 10-year bond yield fell nearly 10 basis points to 4.52%. That was the lowest close since 4.49% on Dec. 18.
This was painful for some investors, and some found out the hard way that triple leverage and daily single-stock ETFs (2x) can crush your portfolio pretty fast.
This is NOT 2007! There is no systemic disintegration of the economy and the markets. Banks will not go under.