Bespoke’s Morning Lineup – 1/27/25 – DeepTrouble?
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“The music is not in the notes, but in the silence between.” – Mozart
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The S&P 500 finished last week with its second straight weekly gain, and it was the first week of back-to-back 1.5%+ advances since mid-May as the S&P 500 managed to close at an all-time high last Thursday. Since the S&P 500 ETF’s (SPY) closing low on 1/10, the large-cap benchmark is up 4.73% while the Nasdaq 100 ETF (QQQ) has rallied by a similar amount (4.42%). Moving down the market cap spectrum, mid-caps (MDY) have rallied 5.64% while small caps (IWM) are up 5.47%. The leader has been micro-caps, though, as the Russell 2000 micro-cap ETF is up 5.75%.
Much of those gains from the last two weeks have been erased over the weekend as both the S&P 500 and the Nasdaq 100 are indicated to open sharply lower on concerns over DeepSeek upending the entire investment landscape for AI. News of DeepSeek first dropped around Christmas and started to pick up steam early last week as articles reported that the model has achieved comparable progress in AI to the most advanced US models for fractions of the cost. Articles published over the weekend have hit a nerve, resulting in a massive sell-off in mega cap US stocks.
If the reports of DeepSeek’s success at such low costs are true, and this is a big if as there is still a lot we don’t know in terms of how it was developed, it would pose problems for some of the biggest AI winners over the last two years. As we type this, the S&P 500 (proxied by SPY) is trading down about 2.25% which would be the largest downside gap since early August and the 60th largest downside gap in the ETF’s history dating back to 1993.
For the Nasdaq 100 (QQQ), the declines are even steeper. With the ETF poised to gap down 3.8% at the open, it would be QQQ’s largest downside gap since early August and the 20th largest downside gap since its inception in 1999. As shown in the chart below, before last August’s downside gap, the last time QQQ gapped down as much as it on pace to today was back in September 2020.
Among the mega cap stocks, this morning’s declines aren’t uniform. The chart below shows where each trillion-dollar market cap stock is trading this morning relative to Friday’s close. Leading the way to the downside, Broadcom (AVGO) and Nvidia (NVDA) are both down by double-digit percentages. These have been the biggest AI winners, so it’s no surprise that investors are selling them the fastest. Microsoft (MSFT) has also declined more than 5% given its close relationship with OpenAI. One name that has barely been impacted by the overnight sell-off is Apple (AAPL); in pre-market trading, it’s down less than 1%. Ironically, all anyone could talk about last week concerning AAPL was how it’s overvalued and missed the boat on AI. Today, that lack of investment in AI is being looked at as a plus!
Brunch Reads – 1/26/25
Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
Dr. Travell: On January 26th, 1961, President John F. Kennedy appointed Dr. Janet Travell as the first female physician to the White House medical team. Dr. Travell was an expert in musculoskeletal pain and myofascial trigger points and had treated Kennedy for his chronic back pain when he was a Senator. When he became president, Kennedy brought her on board as his personal physician, recognizing her expertise as vital to managing his debilitating pain, which was often kept hidden from public view. One of her more famous prescriptions to the President was the use of a rocking chair as a way to manage his back pain as its gentle motion relieved pressure on the spine and promoted circulation. His fondness for rocking chairs became iconic during his presidency, and sales skyrocketed. You can even buy an official one for around $800 today. Above all else, Travell’s appointment was a major win for women, breaking new ground in medicine!
AI & Technology
Open-source DeepSeek-R1 uses pure reinforcement learning to match OpenAI o1 — at 95% less cost (VentureBeat)
DeepSeek, a Chinese AI startup, just launched a new model called DeepSeek-R1. It matches OpenAI’s o1 in performance on tasks like math, coding, and reasoning but is much more affordable, making it a strong competitor. What’s impressive is that it’s open-source, meaning anyone can access or build on it, and DeepSeek even used it to help improve smaller models to outperform much larger ones in certain benchmarks. It’s a significant step forward for open-source AI, especially in the race for AGI. [Link]
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Bespoke Report – Bull Market Confirmed – 1/24/25
To read our weekly Bespoke Report newsletter and access everything else Bespoke’s research platform offers, start a two-week trial to Bespoke Premium. In this week’s report, we cover huge announcements on R&D spending on AI, the electricity needed to power it, Trump’s “drill, baby, drill” policy, Trumpspeak vs. Fedspeak, key earnings stats, post-election winners, and more! Make sure to give this one a read.
Daily Sector Snapshot — 1/24/25
Bespoke’s Morning Lineup – 1/24/25 – Sluggish End to a Positive Week
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth—or the first. These two are the most expensive eighths in the world.” – Edwin Lefèvre, Reminiscences of a Stock Operator
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Here in the US this morning, US futures are biased to the downside as markets digest what is expected to be the second week in a row of gains. Earnings season has continued on a bullish note with positive earnings from the banks and financials last week and then strong reports from Netflix (NFLX), 3M (MMM), Charles Schwab (SCHW), and P&G (PG) this week. Next week will be an even bigger test as the pace of reports will only increase and megacaps like Meta Platforms (META), Microsoft (MSFT), Apple (AAPL), and Amazon.com (AMZN) will all report.
If you’re still reading this, congratulations because that means you survived the ‘December crash’. The S&P 500 declined 4.3% from its December high to early January, which was admittedly accompanied by the weakest short-term period of market breadth since at least 1990. The rally that kicked off Monday has now fully erased the declines, and the bull market has gone on to live another day (or week, month, year, etc.). For many investors, the pullback felt especially painful even if it was modest in magnitude. As shown in the chart below, since the bull market began in October 2022, there were five other periods when the S&P 500 experienced a decline that was both larger in magnitude and longer in duration.
The Closer – Trump Comments, Construction Costs, Credit Cards – 1/23/25
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a recap of Trump’s comments in Davos (page 1) followed by a dive into home construction costs (page 2). We then check in on credit card portfolio performance (page 3). We then recap today’s 10-year TIPS auction (page 4) and finish with a rundown of the latest EIA data (page 5).
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Bespoke’s Weekly Sector Snapshot — 1/23/25
Chart of the Day: The General Electric Comeback
Sentiment Swing
The S&P 500 has continued to press higher in the past week including attempts to push up to new highs in the past couple of sessions. As a result, sentiment has taken a bullish turn and has done so in dramatic fashion. As shown below, the American Association of Individual Investors (AAII) survey has seen big swings in bullish sentiment over the past few weeks. Starting in early December, bullish sentiment fell six weeks in a row culminating with only a quarter of respondents reporting as bullish last week. In this week’s survey, 43.4% of respondents reported as bullish. In a single week, that entirely erases the past month and a half’s drop as bullishness has rebounded ot the highest level since December 5th.
Former bulls had to go somewhere, and the recent decline in bullish sentiment resulted in bearish sentiment rising from a low of 30% at the start of December to a high of 40.6% last week. As for this week, bears fell back down below 30% for the first time since the week of November 14.
Given those readings in bulls and bears, last week the bull-bear spread was negative (meaning there were more bears than bulls) to the widest extent since November 2023. The rapid turnaround in sentiment resulted in this spread rising back up to 14.0 per the latest data. As with bullish sentiment, that is the highest reading since early December.
One thing to factor into this massive turnaround in sentiment is the S&P 500’s return to record highs. As might be expected, historically sentiment leans much more bullish when the index is closer to a new high. In the chart below, we show the average reading in the bull-bear spread throughout the history of the survey dependent on how far the S&P 500 is trading below a 52-week high. As shown, the bull-bear spread has averaged dramatically more bullish readings when trading at 52-week highs and has likewise leaned positive only when the index was at least within a few percentage points of a new high; as is the case presently. That means the big swing towards bullishness is notable but maybe not exactly surprising with the S&P 500 returning to its highs.
While the context of where the S&P 500 is trading versus previous highs is important, that shouldn’t steal the thunder from just how big of a move sentiment had this week. The chart below shows the week-over-week change in the bull-bear spread over the past two decades. As shown, this latest 29.2 percentage point jump is the largest since November 2023, and prior to that, every other such large move higher came before 2010!
Q4 2024 Earnings Conference Call Recaps: MarineMax (HZO)
Bespoke’s Conference Call Recaps use AI to summarize lengthy earnings calls. The commentary below is AI-generated and then edited by Bespoke for quality control. As always, none of these summaries should be construed as recommendations to buy or sell any securities, and investors should do their own research and/or consult with a financial professional before making any investment decisions.
Our latest recap available to Bespoke subscribers covers MarineMax’s (HZO) Q1 2025 earnings call.
MarineMax (HZO) is the world’s largest recreational boat and yacht retailer. You may be familiar with brands like Sea Ray, Azimut, and Boston Whaler. The company operates a network of retail locations, marinas, and service facilities, serving affluent customers in the US and globally. HZO offers not only boats but also high-margin services like financing, insurance, brokerage, and access to luxury marina memberships. The company’s premium positioning and focus on high-value customers provide insights into the health of the luxury recreational market. HZO reported revenue down 11% in same-store sales due to disruptions from Hurricanes Helene and Milton and broader macroeconomic uncertainty. Florida, a key market, accounted for the majority of the decline. Despite a nearly $60 million drop in revenue, gross margins held at an impressive 36%, thanks to strength in higher-margin segments like marinas, superyacht services, and brokerage. Inventory levels rose, driven by softer-than-expected December sales, but promotional efforts during winter boat shows aim to address this. The company remains cautiously optimistic, expecting unit sales to remain flat for fiscal 2025 but sees upside as geopolitical clarity and consumer confidence improve in the spring. HZO shares jumped more than 15% on 1/23…
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