Weekly podcast – Market overview
This week’s host, Investment Manager, Andrew Cartwright discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter, and Head of Property Research, Ollie Creasey. Among the topics discussed – Trump’s first week in office, European Central Bank (ECB) and Bank of England rate cut expectations, updates in the house-building sector, and much more.
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Market overview – Richard Carter, Head of Fixed Interest Research
US stocks have come under pressure in recent trade after DeepSeek, a Chinese artificial intelligence firm, demonstrated surprisingly strong developments that potentially threaten the dominance of mega-cap US tech companies. Last week, global equities gained, with the MSCI All Country World index adding 2.1% (3.8% YTD).
United States
US equities hit a record high last Thursday, as investors reacted positively to the incoming Trump administration. A holiday-shortened week due to the Martin Luther King holiday saw a 1.8% gain (3.8% YTD) for large caps, slightly outpacing the 1.7% (3.3% YTD) that tech-heavy indices posted. For the first time this year growth stocks outperformed value shares on the week, while large caps outperformed small caps.
The omission of any trade tariffs from day one from Trump was seen as a positive step from investors, who on the whole seem to be of the belief that stringent tariffs are a bargaining chip rather than an inevitable policy outcome. The pausing of punitive tariffs on Colombia after it agreed to allow deportation flights from the US entry further supports this view. This came shortly after the US announced 25% tariffs on Colombian imports following the decision to deny entry to two US military aircraft carrying deportees.
United Kingdom
The UK labour market added to the series of recent disappointing economic releases out of the UK, as payroll numbers showed the sharpest drop since November 2020 and the unemployment rate unexpectedly rose to 4.4%. Wage growth remains strong, accelerating to 6.0% in the three months to November, a six-month high and suggestive of growing stagflationary forces.
UK stocks ended the week little changed (4.1% YTD), dampened by a sizable appreciation in the pound which ended the week at US$1.25, up from US$1.22. The UK 1-year gilt yield finished the week at 4.63%, 3 basis points lower (+6 basis points YTD).
Europe ex UK
Continental European equities rose last week, as the MSCI Europe ex UK finished up 1.6% (5.3% YTD). This was driven by a positive reaction to the absence of US tariffs and comments from European Central Bank (ECB) policymakers suggesting a rate cut this month. Gains were broad-based as benchmarks in Germany (2.4%, 7.5% YTD), France (2.8%, 7.5% YTD) and Switzerland (2.5%, 6.0% YTD) posted sizable gains.
US AI dominance threatened?
News that DeepSeek has trained AI models far more cheaply than American peers has threatened to disrupt the status quo, adversely impacting shares of the companies that have so far been seen as AI winners.
Since its launch on 20 January, DeepSeek’s AI app has climbed to the top of the download charts and appears to be delivering performance on a par with the latest version of OpenAI’s ChatGPT. This is all the more impressive given the firm claims to have delivered this performance using somewhat dated technology. However, there are questions around whether this is really the case given the stringent Chinese rules around what technology can be used when training AI models.
It has also been reported that DeepSeek spent only US$6m on this training — a fraction of the cost of training a conventional model. The outcome appears to be building on the results of already developed models, seemingly utilising Meta’s open-source AI model, Llama 3.1. Given DeepSeek has not kicked off from a standing start, there is an element of uncertainty around the validity of comparisons. Nonetheless, there is no denying that it produces good results, and has been developed to use the latest techniques such as chain of thought.
DeepSeek’s success will serve to intensify the US/China AI war, particularly following the recent announcement of the Stargate project in the US. Most pertinently for mega cap US tech stocks, it also provides a possible wake-up call by raising questions regarding how much needs to be spent in order to build a model and whether quite the level of CapEx we have been seeing is really required. That said bringing the price of model training down is no bad thing as it will help to lower the entry point and this price elasticity could help drive usage and volume.”
Author
Andrew Cartwright
Investment Manager
Richard Carter
Head of Fixed Interest Research
Ollie Creasey
Head of Property ResearchTo listen to all the past Weekly Comment podcasts click here or subscribe via the apps below:
