Stock Market Update

[BRIEFING.COM] Today's trade features a sharp decline in the S&P 500 (-1.8%) and Nasdaq Composite (-3.4%). Big tech companies and semiconductor-related shares are leading the declines after China's DeepSeek AI-model garnered focus from Wall Street and main street, appearing to be more cost effective than US alternatives like Open AI's ChatGPT.

The latter calls into question the competitiveness of companies that are powering the AI sector and it could alter capital spending plans if the DeepSeek model proves to be as good as advertised. The PHLX Semiconductor Index (SOX) trades 9.4% lower in response. 

Some of the hardest hit names in the semiconductor space registered huge gains last year, indicating some consolidation activity may be in play after recent exuberance. NVIDIA (NVDA 119.02, -23.60, -16.6%) shares surged 178% in 2024, Taiwan Semiconductor Manufacturing (TSM 190.41, -31.46, -14.2%) closed 89% higher than the prior year, Broadcom (AVGO 200.69, -44.12, -18.0%) shares jumped 107% last year, and Coherent (COHR 77.79, -22.54, -22.5%) gained 117% in 2024. 

The fear-based trading, and consolidation activity, seen in the tech sector hasn't necessarily permeated through the "rest" of the market. The Dow Jones Industrial Average trades 0.2% higher with 20 of the 30 components in the green. 

The equal-weighted S&P 500 sports a more modest 0.3% decline compared to a 1.8% decline in the market-cap weighted index, and market breadth is positive at the NYSE. Advancers have an 11-to-10 lead over decliners at the NYSE while decliners lead advancers by a 3-to-2 margin at the Nasdaq.

The S&P 500 consumer staples (+2.1%) and health care (+2.0%) sectors are higher by at least 2.0% and the real estate (+0.4%) and financial (+0.3%) sectors show less robust gains.

Still, the scare in the stock market has translated into buying interest in Treasuries and other sovereign debt. The 10-yr yield is down nine basis points to 4.54% and the 2-yr yield is down five basis points at 4.20%. Also, today's $69 billion 2-yr note sale met decent, but not great, demand.

There's also an element of hesitation in the equity market today in front of a busy week of earnings. About 40% of the S&P 500 in terms of market cap reports earnings this week, according to FactSet. Two of the three $3 trillion companies are among them -- Apple (AAPL 228.44, +5.65, +2.5%) and Microsoft (MSFT 426.91, -17.13, -3.8%).

The multitude of factors driving today's trade have overshadowed weekend geopolitical news that featured President Trump threatening to impose tariffs and other punitive measures on Colombia after the South American country refused to allow deportation flights from the U.S. However, the threats made by President Trump prompted Colombia's president to agree to a resumption of these flights.

Reviewing today's economic data:

• December New Home Sales 698K (Briefing.com consensus 680K); Prior was revised to 674K from 664K
  • The key takeaway from the report is that new home sales growth was ahead of expectations in December, but selling prices jumped from the bottom of the range that was seen in 2024 toward the top, which presents a headwind to selling activity going forward.