Above The Noise: Is The Worst Of Policy Uncertainty Behind Us?

2025-01-30 05:05:00 ET

Summary

• The December US payroll report surprised but provided more evidence that the labor market isn’t driving inflation.
• Any Trump administration tariffs are likely a one-time price shock, not the start of a new inflationary trend, in my view.
• S&P 500 valuation metrics are elevated, mainly driven by a handful of stocks that are a sizeable percentage of the index.

By Brian Levitt, Global Market Strategist

The best laid plans of mice and men. Above the Noise had been slated to begin with a conversation on inflation. It’s just my luck that our publication date coincided with DeepSeek, a Chinese artificial intelligence ((AI)) firm, announcing that it had released an open-source AI model that took only two months and less than $6 million to create. ¹ Those claims would be far less than the hundreds of billions of dollars that American tech giants such have poured into developing their own models. American businessman Marc Andreessen called it the “AI Sputnik moment.”

Admittedly, I’m not the world’s foremost expert on what’s required to build a large language model, but I’ll offer a few thoughts:

1. The initial headlines may not capture the full story. The reality likely lies somewhere between DeepSeek's $6 million claims and the billions being invested by the US AI companies.
2. The stocks of many of last year’s high-fliers were hit hard by the news, including but not limited to those companies providing the tools, semiconductor chips, electricity, data storage, and cooling systems to develop and operate AI systems.
3. It’s not all bad news. Think of the possibilities! If DeepSeek represents a game-changing direction in development costs of AI, then it should be beneficial across the economy and broad market.

Read the full article on Seeking Alpha

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