MW How DeepSeek's fallout could threaten U.S. consumption, according to strategists

By Barbara Kollmeyer

Analysts point to the wealth effect from the stock market and what a reversal could mean

A post-DeepSeek bounce looks underway for equities on Tuesday, though tech will require much more to recoup from the selloff that punished many of Wall Street's most influential cohorts.

Citi strategists led by Adam Pickett and his team note how the U.S. equity market is "getting frothier," with what they call the current bubble growing more comparable to past bubbles. They aren't ready to call the top, however. "It is always difficult to know the signal of the absolute peak in real-time (in retrospect, the AOL and Time-Warner merger in 2000 was perhaps the clearest sign,)" the strategists say.

Could the sell-off hit the broader economy?

Strategists at Citi say it could, noting a record 58% of U.S. households held stocks as of 2022.

As a rule of thumb, a 1% rise in the S&P 500 corresponds to a 0.30% rise in U.S. household financial assets and vice versa, they say.

While there is no "call to action" after just one day of rough markets, they say, continued weakness for the Nasdaq and overall U.S. equity performance will "open up the space for a weaker consumer."

Others echo this sentiment, with Dennis DeBusschere, president of 22V Research, noting that some are realizing the AI boom has increasing relevance for the macro economy. "AI [capital expenditure] is significant, so the risk to capex and net worth (Nasdaq going down 10% or more) has implications for expected GDP growth," he said.

Bridgewater Associates founder Ray Dalio told the FT that all the excitement over AI is driving a bubble for U.S. stocks, similar to what was seen in the pre-internet bust years of 1998 and 1999. He says "pricing has got to levels which are high at the same time as there's an interest rate risk, and that combination could prick the bubble."

The markets

U.S. stock futures (YM00) (ES00) are tilting higher, led by Nasdaq-100 (NQ00). Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are higher and the dollar DXY is getting a boost from President Donald Trump's tough tariff talk.

   Key asset performance                                                Last       5d      1m     YTD    1y 
   S&P 500                                                              6101.24    1.74%   2.18%  3.73%  24.74% 
   Nasdaq Composite                                                     19,954.30  1.65%   1.18%  3.33%  29.11% 
   10-year Treasury                                                     4.511      -11.90  -3.20  -6.50  43.23 
   Gold                                                                 2773.3     1.53%   5.85%  5.08%  36.43% 
   Oil                                                                  74.8       -2.06%  5.16%  4.08%  -2.83% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

General Motors $(GM)$ reported stronger-than-forecast earnings, while Kleenex tissue maker Kimberly-Clark $(KMB)$ reported weaker-than-expected results.

Starbucks $(SBUX)$ reports after the close.

Durable-goods orders are due at 8:30 a.m., followed by the Case-Shiller home price index at 9 a.m. and consumer confidence at 10 a.m.

Trump says Microsoft $(MSFT)$ wants to buy TikTok.

Best of the web

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The chart

This chart from Goldman Sachs shows how tech earnings have outstripped the rest of the market over the past 10 years. We'll get a first look at those on Wednesday when Microsoft, Meta and Tesla report after the close of trading.

Top tickers

These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   TSM     Taiwan Semiconductor Manufacturing 
   GME     GameStop 
   HOLO    MicroCloud Hologram 
   META    Meta Platforms 
   AAPL    Apple 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   MSFT    Microsoft 

Random reads

Christopher Walken doesn't do technology.

Visiting the Louvre is too stressful, say tourists.

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-Barbara Kollmeyer

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January 28, 2025 06:59 ET (11:59 GMT)

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