A black swan moment for big tech. 30 minutes until the official start of trading. I'm Katie Greifeld. And I'm David Gura. Matt Miller and Sonali Basak are off today. Bloomberg Open interest starts right
now. Coming up, risk off sentiment sweeps across markets. Stocks plunging this morning as that buzz around Chinese startup Deepsea shakes up Silicon Valley. And as such, the stakes are high for the Magnificent Seven. Deep six lower cost, a model casting doubt on those sky high valuations ahead of a heavy earnings week.
But beyond tech, investors are also contending with Trump's latest trade moves and that next Fed decision due out on Wednesday. All that and more coming up. But let's see just how ugly it is in our markets this morning, because right now you have the Nasdaq 100.
We're taking a look at futures here down about three and a half percent. We had been down by more than 4% earlier. You do have Nvidia down by about double digits right now. So that is playing in a big way. On the benchmark. What I'm excited to get to know is why this is showing up in the bond market. You have ten year Treasury yields currently down by about nine basis points. Investors clearly seeking a haven here
and finding it in the U.S. Treasury market. All this volatility comes back into the equity market. You take a look at the VIX right now trading with a 21 handle.
David Girl, we haven't seen that in a while. Haven't seen it in a while. And I'm looking here at individual stocks. Chip related stocks in video and SNL are leading today's plunge as deep sinks lower cost model, which you mentioned, cast down on those sky high tech valuations.
Today's sell off comes ahead of a spate of big tech earnings this week. Several members of the Magnificent Seven are reporting, including Microsoft, Mehta, Apple and Tesla. You're eagerly awaiting those results, of course, but earnings week is underway in earnest already, so five reporting guidance that fell short of expectations. Meanwhile, one bright spot this morning is AT&T.
That stock is up on an earnings beat. Yeah, managing to fight into the green. You also saw Apple briefly turn positive. Of course, we know Apple reports later this week.
But all of the attention right now, all of the mindshare is on what's going on in the supply chain. Of course, deep sea really rattling. It feels like every part of that supply chain from media and sort of the users of A.I. with their own chat bots and also the likes of it in video. The question being, are we massively overspending here? So two things.
David Girl Yes, it's nice to see. Great to see you as well. Katie. Number two is I learned what a Sputnik moment is this morning. Wikipedia. Yeah, Wikipedia. After a text from my father that fear about the perceived tech gap between the Soviet Union and the US in the 1950s, you have to wonder if we're entering into a modern day Sputnik moment right now. I think that the psychology of this is
so interesting with so manifest over the course of the weekend into this morning as well, this fear that maybe we weren't paying close enough attention to what China was doing, what was happening halfway around the world. Do you know what deep sea? I did read Joe Weisenthal newsletter last week and had an inkling of it, but kind of saw it as something, you know, that Joe was interested in maybe I should pay attention to in a few weeks time. All right, let's come nowheres. Check out odd lots because apparently they had the scoop. Let's talk about it, though. The deep sea drop rattling tech stocks this morning. Morning. Let's get right to Mandeep Singh of Bloomberg Intelligence.
Mandeep, I know that you knew what deep secret is, but sort of just set the scene for us here. What exactly is this new chat bot that we're talking about and what does this mean for the current AI supply chain? I mean, it's very similar to your chat, really. Ditto. You could go on chat to be duped or you could go on deep, seek, start asking questions. So really, I think the reason why people are talking about it is really because of the cost. But I go back to when the media open source, their glamour model. That to me was the pivotal moment where
everyone could build a foundational model because matter had open source the weights and in this case, Deep Sea showed a nuanced approach in terms of bringing down the price when it comes to, you know, poor query pricing, which is what everyone has been talking about around scaling laws. And how do you scale this? Well, they showed it can be scaled at a much more efficient way. And I think that's why there is so much kind of focus right now. But that inflection moment had to come sometime. It came from their paper because the paper is very detailed. Get back.
Get back to the psychology we were talking about here a moment ago. I think the fear is that this thesis or this narrative that so many people had bought into might have some holes in it or some problems with it. How rational is that fear as you think about the way that the market is reacting so far? Well, so look at the biggest spenders of CapEx. It's your hyperscale guys who are both training as well as using the same compute for inferencing.
Now, if the training can be done at a much lower price, well guess what? They can deploy that same compute for inferencing, and that should show up in Microsoft's inference in revenue when they report this week, as well as Google and Amazon. So to me, you know, the things are still done on GPU. It's not as if we have found a new architecture and you move away from a GPU to an AC or a CPU, It's still GPUs. It's how do you make the most efficient use of those GPUs? And guess what? The Hyperscalers will leverage, you know, some of the advancements that are shown in. This paper. So to me that's a positive sign for the cloud revenue that will be reported by the HYPERSCALERS this week.
Well, it is funny and probably lucky that this does calm this little moment of panic before a big tech earnings week. And that's where I want to go, because one of the fears that's percolating through the markets right now is has the US just been massively overspending on air? Can we answer that question right now? Yeah, I mean, we have never seen, you know, companies like Microsoft spending $80 billion on CapEx in a year, but they raised their CapEx last Friday and project Stargate coming to the scene, additional buyer of hundred billion in chips. So clearly, we are talking big numbers here and there is a pull forward component in the sense they will be a digestion phase. Now whether this is the moment where digestion happens in 2026, I don't think these companies are going to change their CapEx plans for this year. But clearly we are at a risk where
companies may say, oh, we have enough capacity. But when I look at TSMC, they keep saying that we are still short on capacity. So I don't think when you tie, you know, all the data points that we are getting from these companies, TSMC is still supply constrained. So that means we don't have enough GPUs in the world, even if deep seeded is quite efficient. And that's where I think we still have some runway.
But clearly we will have a digestion phase at some point. All right, Mandeep, so appreciate you. I know you're a very busy, very popular man this morning, so we'll let you go. That, of course, is Mandeep Singh of Bloomberg Intelligence. So let's broaden out this conversation now because joining us at the desk, we have Jack Manley.
He is Jp morgan investment Management, global market strategist. Jack, I want to ask you if you knew what was before this morning, but let's go back to tech earnings again, really convenient that we're going to hear from a lot of these companies. How do you think this changes the conversation on this week's earnings calls? Well, I think it's all about, you know, how do we justify all this money that we've been throwing at this problem that evidently you can solve for a whole lot less? I mean, we don't necessarily have a have have full proof of that statement, but at least for where we are right now, clearly markets are a little bit jittery. So I would say that's that's the big story.
Right. But but that's also a great reminder, I think, for investors right now how vulnerable the stock market is in total because of its reliance on the Magnificent Seven, who are in turn extraordinarily vulnerable, not just because of the valuation environment. I know that's something that we're talking about a lot, but also because of what's going on with interest rates right now. Good time to talk about that, given the Fed. The other kind of complicating factor in here, and I think this is sort of interesting, is that, you know, one of the few areas in Congress and this is maybe opening up Pandora's box are talking about politics.
But one of the few areas in Congress where there actually is bipartisan cooperation is this idea of being tough on China. And that toughness on China has been reflected in export bans of key technology, including some of the technology that we use here in the states to develop AI supremacy. Evidently, that's not working so well, right? If China is still able to develop these chips using what or develop this technology, using what may be considered inferior, inferior chips. So it's not just earnings, right? It's it's the valuation story. It's rates. It's a reminder that policy is going to be front and center this year. It's all this stuff kind of swirling around.
While the S&P 500 is notching all time highs. What does it tell you about where we are in this story? I think we're all familiar with kind of the genesis of Chatter that took many years to get to a point at which it could be deployed to the to the public here. We have this coming together in a year's time. Where are we in kind of the broader narrative about AI and wider adoption, which I assume you would say would lead to kind of a broadening of the market rally that we've seen thus far.
So I would say right now where we are is probably a wait and see moment. I think we're probably going to take a breath and acknowledge valuations, acknowledge that the trajectory of interest rates may be a little bit different, different than we would have otherwise expected a few months ago. Acknowledge again. The policy is going to be very important, but I'm a glass half full kind of guy and this to me is actually a very interesting opportunity because the big story for 2025 as we move into 2026 was this idea of a broadening out of earnings, which in turn would lead to a broadening out of participation, right. Where it's not just the MAG seven, it's the S&P 500 as an index. Now, some of that story hinges on this
idea that the S&P for 93, I like to call them, can actually start to pull their own way, can actually start to do something. But part of it also hinges on this idea that the luster kind of wears off on the Magnificent Seven, that investors have a reason to start looking somewhere else. And maybe this headline this morning is that catalyst that jumpstarts this broadening out of performance that everybody's so excited about. Well, where investors are looking right now is the bond market. And this is a circle I'm hoping you can help square.
Why are ten year yields down nine basis points right now? What is the line that you can draw between what's going on, of course, with deep into the US Treasury market right now, I'm guessing, right to put it into DC? Yeah, we should. I mean, I didn't see what it has set out. I mean. Know it's it's it's it's interest in
purchasing treasuries. Right. And why would you be buying Treasuries? Because you're worried about what's going on at a at a geopolitical level, perhaps. And maybe we're back to having a policy discussion. You know, I didn't know what deep check was. I could have guessed what a Sputnik moment was. And, you know, if we are indeed in this kind of Cold War, at least from a technology perspective with China and we have a new administration in Washington, there is a lot of attention being paid to policy volatility.
So I think that's another thing. And here that we have checked since you brought up Washington twice, by my count. Let me ask you what you've learned over the course of this last week with Donald Trump back in office, just about the interplay between policy pronouncements and proposals and the way that investors markets are reacting to what this second term president is saying. What I've learned is that markets are desperate for clarity on what policy is going to look like, and they're leaping to conclusions which translate into outsized volatility in capital markets.
I would much rather understand what's going on and then plan for it as opposed to speculate. So I'm almost sitting a lot of this policy conversation out on the sidelines, despite the fact that I brought up Washington twice in the last 5 minutes. All right, Jack, we've got to leave it there.
Great to have you with us on a very busy morning. That, of course, is Jack Manley of Jp morgan Investment Management. Meanwhile, quick look on these markets. We still have 20 minutes until the bells ring, but you can see investors getting a start early, selling down big tech stocks. The S&P 500 down about 2% right now. As I said, a lot of that pain is concentrated in the Nasdaq 100 off by about 3.6%. You do have yields lower on the day. That is relative. Good news for the small caps.
And you can see that in the relative performance right now. The Russell 2000 still down, but only by about 1%. Now, coming up, we'll continue that conversation on Deep Stick with C.J. Muse. He is Cantor Fitzgerald Fitzgerald, rather, semiconductor analyst. He joins us next. This is Bloomberg.
Now the high interest. A look at what's making headlines around the world. We'll start with the latest on the wildfires in Los Angeles. The region is getting its first rainfall in months. That's posing a new risk of landslides right now. A flood watch is in effect for Los
Angeles County and several roads are closed due to mudflows. The Palisades fire is now about 90% contained while they eat and fire that destroyed much of Altadena is 98% under control. U.S. Steel is facing a proxy fight. Activist investor and Korra wants to replace the company's current CEO and it's nominated nine candidates for the company's board in a push to abandon the attempted takeover by Nippon Steel. Bloomberg sources reveal that Amcor will push for an end to the litigation attempting to rescue the deal and instead collect a $565 million breakup fee.
And Donald Trump caused a whipsaw in markets over the weekend after threatening a tariff on Colombia. The Colombian peso slumped on the news that extensive tariffs would be imposed due to a dispute over deportees. Columbia played ball with Trump and agreed to a deal narrowly avoiding the economic penalty. Trump had threatened. Well, let's get back to those markets right now and the sell off that is underway in video leading the charge right now, down about 12% before the opening bell. Here with more on what deep seek means
for the U.S. I industry is Cantor Fitzgerald Semiconductor analyst C.J. Muse. He has a 200 price target on Nvidia. And I'm so glad you could join us on such short notice because I'm taking a look at the first line of your notes.
You write that Deep V three is actually very bullish for compute and for in Vedere feels like this market needs some silver linings here. So what is that silver lining? Yeah, good morning. So, you know, I think one of the important takeaways from Deep sea, given their constraints in terms of GPU availability, though clearly I think what they've announced doesn't include, you know, really the full portfolio GPUs that they had access to given how, you know, if they were to publicly announce it, it would go against kind of the embargo. But, you know, they came with some very interesting training techniques, greater optimization that, you know, has enabled a very robust model. And I think all the other large language model providers will be adopting these techniques. And really, if you take a step back, you
know, their announcement basically tells us we're closer to AGI, artificial general intelligence, not not, you know, you know, not further away. And in that sense, that's very bullish for Jevons Paradox, the ubiquity of A.I., and therefore, you know, the true demand for compute to support that. You know, I'm curious that the refrain that we keep hearing is this company was able to basically replicate open AI on a just a handful of million dollars in a very short period of time. And I would love for you to sort of correct that if it needs to be corrected, sort of what are we looking at here in comparison to what met as devised, what Openai has made? Quote from their comments. They're, you know, essentially spent 1/100 of medals, a 3.1. You know, it is rumored that they have 50,000 hopper GPAs. And if that's the case, then they've
spent significantly more than that kind of discussed 5 million plus. So I'm not sure I believe those numbers. I think they've spent many more dollars. I also don't think that they've included some of the R&D spend in that figure. But but to be clear, you know, the model is very interesting.
And I think that, you know, it really speaks to, again, taking a step back, we need to improve the cost of compute a million fold to get to AGI. And this is one more step in that kind of path that we're on. And so I view it as incredibly bullish. If you think about, you know, what
they've done, how will open a meta, others kind of respond. Well, they're going to take these optimization techniques. They're going to apply to them to their large clusters. They're not going to slow down spending there.
They're going to accelerate spending because it's existential and they all want to win. And so I view this, you know, as no change to CapEx announcements. We're going to hear from the Microsoft Tesla this week. And in fact, I think it will only speed up their desire to to invest and try to win, you know, this this A.I. kind of battle that we're in. Well, you mentioned, of course, the earnings calls we have up. And I hear what you're saying, the
bullish case that you're painting for NVIDIA and some of the other names in the supply chain. But even still, I mean, what do you think that these executives what do these companies need to say this week to reassure investors? Because right now it looks like a sell everything moment, C.J.? Yeah, no, I mean, to be fair, specific to invest here, you know, this is one of the most widely known names in the market. You know, we're going to get a small beaten raise when they report a month from now. And so obviously, there's a lot of nervousness.
And I think that the truth behind the nervousness is that, you know, CapEx budgets will not change in 25. It's going to be robust. But the worry is that 26 will not be a growth year. And if, in fact, you know, we look at deep sea and say, you know what, we're going to focus more on efficiencies and ROI in 26.
And then, you know, you could argue that maybe the level of CapEx spend growth in 26, all else equal, will be less. And that's what's driving the skittishness. And so, you know, taking a pause here and and pulling back is very understandable because there is greater uncertainty today. And AI is the most heavily owned part of my world in semiconductors. So I get the skittishness.
I would just, you know, advise taking a step back, thinking through what we actually heard. And I would argue a month ago we were, you know, worried about in video that scaling losses were slowing and that's negative for Nvidia. Now, the market saying scaling is accelerating. Well, that's negative for me. You can't have it both ways. So I think as the market truly digests, the news will realize this is not a truly negative event.
But you know I think to to the earlier comment from your prior speaker around uncertainty, you know, deep sea adds uncertainty to the market. Obviously, you know, given the heightened valuations, you know, it's a negative today for sure. C.J., let me ask you lastly just about this kind of geographic binary. And I think when you look at investor
skittishness, some of that is attributed to the fact that people were caught, blindsided by what advancements a Chinese company had made here. And I wonder how you think about that. Our kind of ability to understand or stay abreast of the advances that have been happening in China in this environment where there is clearly such a kind of competitive layer to A.I. in particular. Well, you know, I think that China
understands how important air is to is to their economy, just like the United States. And so, you know, it is going to be a fierce battle. And, you know, it's one that, you know, I think we in the United States can win. But, you know, let's not lose sight of the fact that, you know, China has, you know, very talented engineers. They can put significant dollars behind it. And so, you know, it's not going to be easy.
But, you know, I would never bet against the engineers we have in the United States as well on short notice and with great insights and use of Cantor Fitzgerald. Thank you very much for the time. And coming up here later this hour, we speak to managed Cobra of Society general who weighs in on the potential threat from deep sea. That's coming up. This is Bloomberg.
All right. Welcome back to Open Interest. After a really powerful week last week, you're now looking at a big sell off and it's all about deep sea. And this is supply chain. The S&P 500 up by about 2.2% right now. A lot of that pain is in the big tech space. The Nasdaq 100 down about 3.6%.
And we should show in video because that is where all the action is this morning. Nvidia shares currently off by about 12% right now. Of course, this is sort of the black swan moment that people who are worried about valuations have probably been looking for as an excuse to sell. Absolutely. When I think about kind of the juxtaposition between the news that we got over this week and into this morning with what we saw unfolding in Washington last week, all of the enthusiasm for more compute and more datacentres and more infrastructure spending when it comes to AI in Texas. So a stark contrast, I think. Yeah, of course, all the fanfare over that big G they announced with that $100 billion spend coming up, that powered tech stocks last week.
But now the question is, are we massively overspending here? What are we actually getting for our investment? But we'll try to answer those questions coming up. Less than 4 minutes until the opening bell. Catarina Simonetti joins us of Morgan Stanley Private Wealth Management. That conversation up next. This is Bloomberg. All right. We are moments away from the start of trading on what's pointing to be a pretty brutal start to the week.
Welcome back to Bloomberg Open Interest. I'm Katie Greifeld. There was so much euphoria last week, of course, the best starting week for the S&P 500 for a new president since 1985. For this morning, that feels like a distant memory we're talking about. We're talking specifically about Chinese start up deep sea and those lower cost air models sending a bunch of panic through the eyes supply chain and the broader markets.
Right now, you could absolutely see that in the pre-market. You're going to see that in just a couple of seconds. But in any case, you do have those opening companies ringing the bell. There's still some enthusiasm to be found, but not on this board. To my left right here, the S&P 500 down by about 2.3% right now.
And as we've been saying, the pain concentrated in tech, in big tech, that is the Nasdaq 100 off by about three and a half percent. Think chips, of course, but also think a lot of those big tech companies that are going to report this week, such as meta, such as Microsoft, your relative safe haven on the day is, of course, those small caps, the Russell 2000 only off by about 1% right now. You do have the bond market coming in, investors seeking safety in longer duration treasuries. That's good news for the Russell 2000 but couldn't even escape the pain today. Meanwhile, let's get back to those chip stocks, though, because in video ASML plunging as deep seats, lower cost model casts doubt on those sky high valuations. Traders clearly looking for an excuse to
sell. Right now. Nvidia down about 13%, ASML currently off by about seven and a half percent. David Gura It's ugly. It's ugly. You mentioned those big stocks. Magnificent Seven.
I thought we were going to come in here today just talking a bit about earnings and it kind of surprised Alan but regular way to take a look at those big seven stocks. Microsoft, Medha, Apple and Tesla all set to report results later this week. The stakes are high, as we heard. There's going to be an eagerness to hear some of them respond to the news that we've seen here over the weekend. We are eagerly awaiting the results of
those companies, of course, but earnings week underway already in earnest so far, reporting guidance that fell short of expectations in well, one bright spot this morning is AT&T. That stock is up on an earnings beat. I want to get back to that top story now. Deep sea shaking up global tech Bloomberg Technology co-host Caroline Hyde joins us now for a closer look. And Caroline, I will not ask you the litmus question we've been asking every guest. That is, have you heard of this company before? But I am curious sort of how you see this fitting into this broader narrative about kind of the nascent evolution here of AI.
It puts to question, do you need ever more compute? Do you need ever more half trillion dollar announcements coming from SoftBank and Oracle and Openai for that amount of compute power? If you can start to make larger language models far more efficiently, far more cost effectively. But there is a big but this is open source versus closes. We've been having this argument since the beginning of Metro announcing LAMB of US is open. I tried to still say it's only really with its own chapters and its own large language models that the future can be clear. And actually Bloomberg Intelligence already saying, yes, this is going to make it clear that you can do more with less. And what that expression that, of course, open readily.
We're going to see innovation being the being the side effect of the fact that we've had China being put against being limited in terms of its ability to be getting these chips from in video and the like. But Bloomberg attended it, saying Microsoft has Oracle unlikely to be cutting back their capital expenditure because, look, private enterprise need closed models. They need to be able to iterate privately. They're going to still need access to cloud. What's interesting, though, the number
one downloaded app on Apple today is out of deep sea can get on it. No, they need more cloud compute. They need more overall access to data centers right now, deep sea, red node, all the Chinese apps that are popular right now among us consumers. I want to talk about the lower cost portion of this, though. Do you think do you get the sense that this is going to spur a race to the bottom when it comes to cost? Because that seems to be what's really rattling all the big names that we've been speaking. And I think already you've been getting
that to a large extent. You've already been seeing the opening. I've been trying to make clear that this is a cheaper and cheaper offering. Whether or not they're subsidizing it, whether or not they're able to be thinking about more energy efficiency and beginning to get therefore more cost effective and cost efficient use of their own compute power. But this ultimately does show that you have to innovate to be able to make things more and more accessible. Look, this is free to use the model and
is open to use. And indeed the APIs which you can put within your own offerings, your own chat bots is really, really cheap in comparison to that of open air. So yes, you are going to have to have this innovation that suddenly means that you're going to be quicker, cheaper, more cost effective for many. But I think ultimately we're going to be questioning whether or not we should be seeing a $65 billion announcement coming from metro into data centers. What we loved on Friday, we hate on Monday. But it is also, though, that.
Is an open source offering already matter has been trying to make the argument that when you bring developers together in an open source manner, you're able to innovate that much faster. Bloomberg Intelligence has said for ages that this deep stake is a critical large language model provider. It is the seventh best they thought in the world, and that was June of last year. They already think China is only about four months behind the United States in terms of large language model innovation.
That's how they really compared perhaps text to image generation. They thought that China was about four months behind when it came to competing against solar, for example. This shouldn't be as big a black swan as it currently is, but it seems as though suddenly we've all woken up overnight and thought, Goodness, China is really rather good at this.
Even if we do limit our own video chips to it. Well, my takeaway here is that we all need to be reading more Bloomberg and less apparently collectively on Wall Street as well. Caroline, i know you have a huge Bloomberg Technology show prep for today. That, of course, is Caroline Hyde. She is co-host of Bloomberg Technology. And coming up on that program, former White House chief information officer Teresa Payton will join the program.
But stay with us. Now let's bring this back to the markets because joining us is Catarina Simonetti. She is Morgan Stanley, private wealth management adviser and senior portfolio manager. Great to have you with us on a very big day in markets heading into really the heart of earnings season.
Katarina, if you think about the last couple quarters, there's been a real scrutiny on how much big tech is spending on AI, on CapEx, how much they're devoting to these technologies. I have to imagine that question just became more urgent. Absolutely. Katie, Thank you for having me on the show today. Out of all days, because decline in tech stocks to date can be really attributed to two main factors. One is high valuations and two is high portfolio concentrations, as investors are so driven by this fear of missing out and missing the wave and missing this technological revolution that is definitely upon us. We keep emphasizing that this change takes time. Technology is not perfect.
It's not going to inevitably, immediately lead to a lead to the efficiency, productivity and lower cost. This things are going to take time to develop and therefore, we need to be patient. And there is, however, if there has ever been an argument for maximum portfolio diversification, this argument is now.
Technology is extremely important in within the portfolio is going to be important going forward. And all these things are going to, you know, eventually play out. But costs are a major and not just the costs of operation and cost of energy and data centers and, you know, operating air. But also we are in the high interest rate environment. And, you know, the Fed action is going to play a big role here. Catarina, we've heard so much about the need for this market to broaden this hunger for more breadth.
And I guess this could be kind of an unexpected, perhaps unwanted catalyst for for that to happen. But I wonder if we could kind of look at the catalyst such that it is I'm curious what it tells you just about the state of the promise of AI. We have we have banked and put so much faith in this being the future of technology more broadly. Is this cold water to some degree? How do you look at sort of what we've learned here in recent hours? Well, it's important to remember that we're in this for the long run. And the fact that AIG is going to be a
catalyst and a game changer, both in financial services, in health care, in manufacturing, really every aspect of our lives is undoubtably we absolutely have to be present. We have to be invested in tech and AI, but should be concentrated in these areas to the extent that majority of the portfolios are following the returns of 23 following the returns of 24. Absolutely not. Rebalancing plays a role. And we also can't forget that the market leadership is ever changing. If we look back at performance of last year, the best performing sector was actually financials, not technology. And investors are starting to realize that being in sectors such as energy, utilities, materials, financials is extremely important or the the total performance of their portfolios.
And this tech concentration needs to be rebalanced and reduced. And that's what we're seeing in the trading pattern right now, days like today. Well, Sonali Basak is smiling somewhere in Miami with that financials mentioned because that has kind of been the underappreciated leader of this market. I want to talk about health care, though, because you think about health care. It's one of those places where there has been a lot of talk about potential A.I.
potential when it comes to health care, but it feels like there's just been no love for that sector, even with maybe some M&A rumors as well. How are you thinking about one of the most beaten down sectors there? Well, Katie, with so many drugs or having trouble, you know, quite late in clinical trials, health healthcare is definitely, you know, taking this moment to figure out, you know, the direction. But air component there is unbelievably important when we think of the difference is going to be in generating the pool of patients for clinical trials, inefficiency of bringing the drugs to the market in efficiency, of analyzing the data. This is going to be the game changer for health care.
So we absolutely are bullish on the sector in the long run and we see a lot of buying opportunities. Investors always are looking for value for productivity, for earnings. They're saying, you know, where is the good sector? Where we can find them and find some interesting buys in health care is definitely the sector at the moment on today of all days. But any day really, we are grateful to Caterina Simonetti of Morgan Stanley Private Wealth Management, for joining us as we continue to follow this market sell off, it continues.
Rattled by China's deep sea AI, we're going to speak with Manish Cobre Soft Jones lead US equities and multi asset strategist get his perspective on the market effects of this coming up next. This is Bloomberg. Welcome back to Open Interest. A quick check on stocks right now. We're going to start on the left side of your screen with Nvidia currently down by about 11% after that deep sea progress news that is really weighing on your big benchmarks right now. The Nasdaq 100 off by about 2.8%. We had been down 4% in the premarket. So those losses lessening right now.
The same story is true in the S&P 500, currently off about 1.7%. That's pretty steep. But of course, a lot can change between now and 4 p.m. We'll continue to track the progress
there. But it's time now for top calls. Some of the analysts action in Focus this morning. And first up, Ralph Lauren, no longer a buy over at Raymond James. The firm is cutting its rating on the high end apparel retailer to a hold. Bloomberg intelligence estimates that Trump's proposed 10% tariff on Chinese China could raise apparel prices by up to 2%.
Next up, Barrick Gold getting a downgrade over at Bank of America. The firm is cutting its rating on the mining company to neutral, citing caution in its fourth quarter results. The report reports earnings in two weeks. And we end with State Street no longer a sell. Over at Wolfe Research, The firm is raising its rating to neutral after the bank reported earnings and sales that topped estimates earlier this month. David. We're getting back to the news of the Morning.
Deep sea putting tech stocks on track for a $1.2 trillion loss today. We're joined by Maneesh Cobre Societe Generale lead US equities and multi asset strategist. Maneesh, thank you very much for being here. And I'm curious at this point, given what we have read, what we know, what more you need to know or learn about what this company has done and kind of the integrity and strength of this same model, Where are we just kind of in identifying and understanding its capabilities right now? Yeah, no, I can't say about that.
Thanks for having me again. You know, it's very clear that two parts of the US market one, there's American exceptionalism ingrained in the NASDAQ and tech sector. And then there's America First, which is all about, you know, the revolutionary policies, you know, the new ideas proposing. So. So let's let let's play this part. And I think that's that's the most critical element at this point. Now.
I would say NASDAQ, which has been the exceptional index, exceptional profit run 20% annualized growth for 20 years. I think it's very obvious in a market gets concerned with anything that hampers or even puts a small list of the smallest question mark that there can be some form of profit. And in the current uncertainty, I would like BET and the deep seek, as I noticed a lot of unknowns rather than knowing. But one thing is very clear market is concerned where the profitability of these companies are going.
Well, let's wrap in the valuation conversation to what we're talking about, because valuations, it feels like we talk about high valuations all the time, but they don't matter until they do. And clearly today they matter. And against that backdrop, would you expect this to become a by the dip sort of moment or do you think that those valuation concerns will persist even when valuations are two element one, the US bond market, ten year bond yields, which I would say is one of the good things that has happened or let the blessing in disguise that that's happened. And now there's a bet on US tenure. And and I think that gives a confirmation. I think we should not see valuation related be rating in this backdrop. The second part, which is all about the profits and then said something we have don't you know this year if you think you know, this year was not about Nasdaq 100 profits anyway, so there has been a headwind.
The growth rate has been slowing. And I think that profit growth rate driver, whenever the pace of a profit growth slows down, I think that's been some of the valuation had been tend to happen. Now I would say if you don't have a hard landing view, but you know, one of the reasons why we have said and arguably for the last seven months, is not to look for those parts of the market, but rate profits have been slowing.
So again, I would say valuation wouldn't matter, but they matter only to scenario one, which currently the good news that won't have a bad second on the profits. But I would say outside tech we are going to see double digit profit growth in 2025. So so you have lot of places to buy in the index. I know there were 18 minutes into the US equity trading session, but I want to meditate on the bond market a little bit because we were talking about it. This bid that you're seeing in bonds as
a result of this fear in the market right now about the US lead in AI, why does that translate into a six basis point bid into the two year Treasury yield? Why would this matter for the Fed? But I would say at the moment it's a knee jerk reaction that even in a market that's gone for safety and, you know, different parts of the bond market has kind of go to bed now, no matter what has been the unknown is what is the true cost of a product rollout, which is, you know, the question mark that the SEC has created. So. But I would say the uncertainty of everything, the extent of spending that Hyperscalers have been doing that should be reducing CapEx gets into focus. You know, we should not see as much as inflationary dynamics that the techs and the the Mac seven CapEx cycle has created. So. So I think that's you know, that's one
of the key drivers, which is, you know, is would be cheaper than what market has been expecting if that's the case. I think the cost of productivity actually goes lower. Maneesh, let me ask you just what this means for our kind of broader understanding of where we are in the development of AI. And a word that I keep seeing in writing about this is transparency. And I can use a different application of that just to sort of ask you about how much transparency we have into how these companies are iterating and growing and getting the kind of compute they need.
Is this going to be a catalyst and kind of another of another way where we're going to have to there'll be a demand on these companies to sort of tell investors more about what they're doing and intend to do and how they intend to get their. Yeah. First and foremost, the onus is on hyperscalers. The onus is is on them to prove one, they have the pricing power. And second, you know, a deep say what's what's come into the equation as you know, the CapEx projections. So if you have product pricing, that's you know, the question on the CapEx projections, I would say the onus is on the HYPERSCALERS to prove at least in the upcoming earnings earnings season.
Very curious what you were telling jittery clients of yours. Should you have them just about how they should be be riding this wave? You know, 1.2 trillion is a is a large number. What do you say to folks who are nervous at this point in time, as a lot of folks are nervous? You know, I as in my and my colleagues, so we all knew and everyone you know, in the market, they're aware of the concentration risk. You know what? Not has been appreciated. As you know, when rate of profits
change, when the policy shifts in a certain direction and positioning needs to be changed. And I think that positioning is always going to five S&P 500 on an equal weighted basis, you know, which I would suggest two weeks ago had a big head like 7 to 8% because of the bond market. And the bond has been and that rotation from NASDAQ, the S&P 500 equal weight, then, you know, instead of just one or two, you know, two trading days, I think it becomes for a longer period. And, you know, and I think that that's our biggest call because American exceptionalism positioning, which everyone has you're moving to America America first positioning and that American exceptionalism to America first literally translates into moving from NASDAQ and the S&P 500 equal later. And when we have less than a minute left with you, but it's a fun detail that, of course, we're having this moment of panic, if you want to call it that, before big tech earnings did what we're talking about right now, this this moment in time change what you're going to be looking for when we get those reports on those earnings calls this week. Everyone,
every company would get asked on on tariffs. Every company would get asked on, you know, the dollar movements. You know, if you combine those things together, that would be a big focus. To what degree companies said they can, you know, navigate or pass through the cost of the elements that can happen. But ultimately, we want confirmation that the GDP growth that we have seen, the US consumer spending that we have seen, all of that needs to come into numbers. So I think the US growth as a driver or it can only as a driver needs to come into the profit cycle. All right.
Many, many really appreciate you joining us on such short notice on a black swan moment of sorts. That is Manisha Kaba of SOC Gen. This is Bloomberg. All right. Welcome back to Open Interest. We're taking a look at the stock market right now, not quite at session lows. Some of those losses coming back. The S&P 500 currently down about 1.6%. That certainly isn't good, but it's not as bad as it was maybe 30 minutes ago.
You take a look at the Nasdaq, 100 still lower mightily on the day, the Nasdaq 100 off by about 2.7%. A lot of that pain showing up in big tech, as you can see in Nvidia shares currently off by about 11% as billions and billions of dollars being shed in market cap right now. But let's take a look at the VIX. I thought this was interesting. Of course, at the top of the show we saw the VIX trading with a 21 handle.
But now that quiescent VIX. David Gura coming in below 19. Love that word. Love that adjective. Yeah. I mean, I think it's fascinating to
watch this in the context of the larger story. I an English major kind of thinking about that in that kind of thematic way in a lot of words, you know, a lot of words and thinking of that come novelistic way. But I do think that this the notion that we've been kind of seeing spending huge amounts of spending here on data centers on compute will be we're seeing a question today to what end? I don't know. And we know it's going to be a question
on the round of earnings calls that we have coming up from a lot of those big tech names. We'll discuss all of that in the hour. Coming up with and the lady, she is all spring investments, global head of equities. This is Bloomberg. All right. We're 30 minutes into this brutal trading day. Welcome back to Bloomberg Open Interest. I'm Katie Greifeld. I'm David Gura. Matt Miller and Sonali Basak are off today.
Coming up, risk off. Sentiment sweeps across markets. Stocks plunge as the buzz around Chinese startup deep sea shakes up Silicon Valley. The stakes are high for the Magnificent Seven Deep seeks lower cost a AI model, casting doubts on sky high valuations and beyond. Tech investors also contending with Trump's latest trade moves and the next Fed decision due on Wednesday of this week. All right, let's wrap all that into these markets right now. The Nasdaq 100 trying to pare losses being successful so far, The Nasdaq 100 coming off about 2.6%.
Again, for context, we had been lower by more than 4%, pre-market. So those losses coming in here, but still pretty steep. The ten year Treasury yield down by about seven basis points.
We had been looking at a 12 basis point drop in ten year Treasury yields earlier this morning as investors look for havens here. Some of that is lessening as well as some of that volatility drains out of the equity markets. The VIX currently trading with an 18 handle that is elevated relative to recent history, but still below the 21 handle that we were boasting this morning.
Meanwhile, we do have a little bit of economic news. New home sales coming in at 690 800,000 for December. That is above the survey and well above the prior reading. The survey had been for 675, 675,000. But see, seeing these numbers come in just below 700,000. So new home sales coming in strong for
the month of December. But let's go back to our top story. And that, of course, is big tech ahead of earnings. And let's take a look at at least one group, how they're spending their money.
Hedge funds turning cautious and selling Magnificent Seven stocks ahead of today's sell off. For more, let's bring in Natalia Jovic. Hi, Katie. So at least today, this really looks like a very, very smart move. We see that hedge funds have been selling Max seven stocks for two weeks in a row now.
This chart really illustrates positioning and sentiment now, net exposure, net allocations to max seven names across all across all stocks in the US is standing at 15% and this is the lowest level since May 2023. We did see some dip buying after the US presidential election, but overall hedge funds are still really cautious on US tech stocks. I wonder about the narrowing and widening of skews and if you see kind of similar cautious stance in the options market as well. I think it's one of the biggest story today because just yesterday we published the story about options market and how no one is really positioned to the downside. We checked positioning across all max seven names. And the story here is that traders were
much more cautious ahead of the previous earnings results. This time around, no one was buying downside protection. And on the bigger picture. So this chart is a good illustration. It shows put to call ratio here across US stocks. It was hovering at multi-year lows just on Friday, but now today we see a pretty significant spike in that. And the biggest question key, and David, is, is this just an overreaction or is it a bigger change in sentiment that could potentially last for longer? Yeah, a lot of investors asking that question right now. Great setup, as always.
That is Bloomberg's Natalia Kenny David let's keep the conversation going with and the she is all spring global investments head of equity great to have you on such a day in these markets and ahead of the heart of big tech earnings and we know that expectations for big tech earnings growth had already been decelerating. And against that backdrop, how were you thinking about this news deep sea you the fear of lower cost models coming from China as it relates to portfolio setups? Yeah, thanks for having me on today, Katie. Look, I think we have been trying to focus on the opportunities beyond concentration. That's that's been the area of focus and in the outlook as we go into 2025. And I'm actually in Austin, Texas today as we launch our distribution summit.
And again, that is a theme. We didn't know this news was going to happen over the weekend, but deep SEC is been, you know, investigated a lot by our growth teams in particular and our technology analysts. And, you know, it was likely that something was going to come to cause more volatility in the space. It's too early to say how much of an
impact this truly will have. But I think investors are going to be really looking carefully at CapEx spend, especially as these big. Cap technology companies start to report the quarters. I'm curious to sort of how this colors earnings more broadly.
So, yes, this is the backdrop now as we get all of these reports. But to what you were just saying, sort of how does it shape the way we look at the results that we're going to get? Listen to these executives as they talk to to investors? What do you think? It's kind of incumbent upon them to say in light of the news that's developed here overnight? Yeah, David, it's a great question. I think, you know, investors want to know that capital is being spent wisely. And for the most part, I think investors have been very comfortable with these large technology names because the CapEx spend that they have put to work has really increased revenue and in earnings growth. But with all of the investment dollars going into the air space, they want to they want to make sure that that continues, especially with the multiples these stocks now have. And so the focus will be on capital
allocation and what the CEOs and CFOs are saying about their investments in this space and how it relates to their competition. I think those are going to be some of the key things that the investors will be watching and waiting for. Look, though, I would say this volatility this morning is not surprising on top of the concentration you see in the passive benchmarks. You have some levered ETFs out there as
well, both in the semiconductor space that are increasing or exasperating the amount of volatility we're seeing here this morning. Well, let's talk about that a little bit more. Of course, I live in the ETF space ETF IQ coming up at noon today. But talk to me about that because we have seen especially retail investors really gobbling up these leveraged tech ETFs, both on an index level and a single stock level. How are you thinking about that as a portfolio manager who maybe doesn't play in some of that silly stuff? Yeah, look, we're just launching active ETFs at all spring and you know, it's an exciting time. I know it's a good choice for investors as they think about protecting on the tax front.
But I think when you invest in any any type of vehicle, you have to understand the risk versus reward. And I think the concentration risk that we've seen and many of these ETFs has been what has been concerning to us. And it does have implications across all the markets and across any type of investment you have now. So we're seeing the repercussions of
that today. Katie. But look, I think we have a little bit more time to see how this plays out. Yeah, if you're looking for fun, David, to take a look at envy deal that is the green tickers to times long ETF, it's down just 25% at the moment.
Can I ask you about something else that happened this weekend And so before the football game I think that the catalyst everyone was looking at was what President Trump was saying about Colombia and this threat of imposing tariffs on a country that wasn't even in the conversation maybe 24 hours before that happened. And I think that it's giving us a taste for sort of the mercurial nature of this president, this administration, and how that dovetails with markets. Let me venture just to ask sort of what you learned from the, I guess, eight or 9 hours that we went through yesterday when we saw markets kind of reacting to what this president threatened and then took away? Yeah, You know, David, I think the one thing that we as investors have to understand is we tend to bracket things in silos. So when we talk about tariffs, we talk about that separately from interest rates, separately from immigration, separately from, you know, trade policy, all of those things. And as you see and as we saw kind of even in Trump's last term, a lot of these things are, you know, get conflated together. He likes to make deals not within silos, but across all different types of metrics. And so immigration, inflation, tariffs,
all of those things get rolled together and things can move very, very quickly. So although most first year presidential terms are positive for markets and we believe that this one will be two, most administrations don't move this quickly. And I and so there's less volatility in year one.
We actually think there will be more volatility because things are moving very quickly and they are somewhat unpredictable. But I think there's a little bit more discipline behind the actions than kind of some of the actual negotiation that gets thrown out on day one. That's certainly part of the hope for the bull case.
But again, let's let's go into your shoes and how you think about this as a portfolio manager. This noise, it's unclear, of course, what is a negotiating tactic, what will become actual policy. Do you look through it or how do you hedge for that uncertainty? Yeah, it's a great question, Kate. In in look, look. Equity managers are always kind of balanced. Risk versus reward. And so you're looking at company fundamentals. And I think that's the most important
thing that often gets ignored in these very micro and macro driven markets. You have to make sure that you're invested in companies that have the ability to be flexible, to move very, very quickly and have the balance sheets to be able to do that. And honestly, the management teams with experience to be able to do that as well. So we tend to focus on the micro, on the bottom up and making sure that we try to stay invested in companies that can sustain whatever change happens over a longer period of time. And we've talked a lot about technology here. In particular, let me kind of pull back
and ask you sort of where you are interested beyond that, other sectors that you think that are more promising as we talk about kind of broadening out, looking for more breadth. Where do you see promise beyond big tech? Yeah, it's a great question. And I think, look, we believe that A.I. is real. We believe this innovation cycle is real and long lasting. But we do think it's bigger and broader than just technology. It will spread. It will produce productivity
improvements at a lot of different areas. One area that stands out to me is health care. It's been an area that has been under a lot of pressure, both through underutilization during COVID and also due to some of the pressures that the GLP one drugs have brought to it. But if you think about A.I. and the productivity improvements that could come to the health care sector, it's pretty exciting. And some of the names are pretty attractive valuations. So that's where I see a lot of our
equity teams looking for more names. I would say even more broadly than that, down if you look down cap, so away from just the mega-cap trends in the small and mid-cap space, there's just been a lot of companies, regardless of sector, that have been ignored because of this focus on just such a concentrated few names in the market. And the Leti in Texas today of all sprint joining us on all of this market news and thank you very much appreciate the time. And coming up, Trump's deep sink
problem. We'll talk about what the reckoning means for Donald Trump and the White House and Wall Street. This is Bloomberg. Now the high interest. A look at what's making headlines around
the world. Israel and Lebanon agreed to extend their cease fire until February the 18th to give Israeli troops more time to withdraw. The cease fire deal between Israel and Hamas still holds while a dispute over a hostage is resolved. Talks on the return of Lebanese prisoners and the release of more hostages are set to begin. Elon Musk's Department of Government Efficiency is officially online. The government is currently recruiting full time software engineers and other tech staffers.
Applicants must be U.S. citizens and depart from a resume and a commitment to working in the office. They are asked to list up to three items, quote, showing exceptional abil
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