Tech’s DeepSeek Slump Left Rest of Market Historically Unscathed

Jan 28, 2025
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(Bloomberg) — Several measures of stock market health suggest that Monday’s sudden slump was in fact mostly an isolated hit to the world’s biggest technology firms and AI-related shares.

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The Nasdaq 100 slid 3% and Nvidia Corp. plunged 17% — shedding almost $600 billion in market value in the biggest wipe-out in history. That came as Chinese startup DeepSeek’s latest model shook the belief that only Big Tech with huge budgets can compete in the artificial intelligence field — questioning the investment case that has favored the biggest players with rich valuations.

Yet looking under the surface, things were not that dramatic on Monday: a majority of S&P 500 stocks ended the day higher, with the Advance-Decline Index — which measures stocks rising minus those falling — showing a positive reading of 199 even as the US benchmark sliding 1.5%. That was unprecedented over the past 20 years.

“The selloff so far has not been indiscriminate, with markets distinguishing between winners (software) and losers (semis),” Barclays Plc strategists led by Stefano Pascale wrote in a note. “However, the high concentration of US equities translated into large losses at the index level.”

In another sign that the selling was contained to only the largest technology stocks in the US, the S&P 500 Index Equal Weight Index closed the day little changed. Even in Europe, benchmarks like the Stoxx 600 and Germany’s DAX are back to hovering around records.

Future and cash trading volume spiked with the S&P 500 Composite Turnover Index reaching one of the highest readings outside of an options expiry. Yet trading desk activity does not seem to reflect a market in the state of sell it all. “Our floor was a 7 on a 1-10 scale in terms of overall activity levels,” wrote the traders at Goldman Sachs Group Inc.

“This is why you build a diversified portfolio. It’s not great to have the the entirety of your capital in seven names because things like this can happen. Disruption happens,” Steve Chiavarone, head of multi-asset solutions at Federated Hermes said on Bloomberg TV. “Value stocks look a heck of a lot better, and the small caps look a heck of a lot better, and you only need a roof when it’s raining.”

In terms of downside hedging and risk-off indicators, the VIX Index quickly reversed from a 7 point spike to close only 3 points higher. The gauge’s future curve changed only moderately and is not suggesting any notion of deeper market unease, beyond the elevated level that persisted since last summer.

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