Key Takeaways
- Technology Stocks Lead Market Recovery With Strong Gains On Tuesday
- DeepSeek AI Sparks Concerns Over Industry Investment And Competition
- Tesla Faces Uncertainty Amid Policy Shifts And Global Tensions
Following a rough start to the week, stocks traded higher on Tuesday, led by technology companies. The Nasdaq Composite gained 2% followed by the S&P 500 which gained just under 1%. The Dow Jones Industrial Average and Russell 2000 gained 0.3% and 0.1%, respectively. But none of that may matter as we head into a stretch of three consecutive days of big news filled with earnings and economic data.
On Tuesday, Starbucks reported better than expected earnings, but the company continues to struggle. Same store sales, the gold standard by which retail stores are measured, declined by 4% making it the fourth consecutive month of quarterly declines. Store visits also fell by 6%. Brian Niccol, the new CEO who was recently brought over from Chipotle, was optimistic about the company’s progress in his call with analysts and the stock traded above $105 in after-hours trading Tuesday before pulling back. In premarket activity this morning, shares up 0.6% to just over $101.
Earnings season will heat up today with Meta Platforms, Microsoft and Tesla all scheduled to report after the close. The selloff we saw in the market on Monday was largely attributed to DeepSeek, a Chinese Artificial Intelligence (AI) application. China claimed the AI model was developed for a fraction of the cost as other AI models but worked equally well. That news generated questions about AI chip demand and whether or not companies, such as Meta and Microsoft were spending too much on AI as well as falling behind in the AI race.
I do think we need to take the DeepSeek news with a grain of salt because China isn’t always reliable when it comes to accurate reporting. Still, when Meta and Microsoft report, I expect a lot of discussion centered around AI spending and what kind of return on investment is expected. As I’ve said several times in these columns, at some point there needs to be a payoff for all this spending. Thus far, the only companies making money on AI are the chipmakers and infrastructure providers. DeepSeek may be the catalyst that leads to more pressure for companies to show a return on investment.
With respect to Tesla, I think investors have several questions. First, just how stretched is Elon Musk. He was already running multiple companies and with his new position within the Trump Administration, he’s certainly stretched further. Second, and tangentially related to that will likely be questions on energy policies within the administration. For the past several years, the government has been incentivizing consumers to purchase Electric Vehicles (EVs). But if those incentives are taken away, it’s fair to wonder what it will mean for demand. Finally, in addition to domestic policy and what that will mean for demand, I think there are also questions about foreign demand that may come up.
I think one potential area of concern with Tesla that isn’t being discussed is its vulnerability to international politics. Because of his position in the administration and close ties to President Trump, it’s possible we will see countries, such as China, use Tesla as a pressure point in foreign policy. I can easily foresee market access being cut off or made more difficult as part of a negotiation tactic by other countries. Therefore, I am hopeful questions about this possibility are brought up and discussed.
Continuing on with earnings, tomorrow morning we’ll hear from companies that offer a picture on the state of the broader economy. Caterpillar, Mastercard and UPS all report Thursday morning before the open. Each company offers a slightly different view on both the economic conditions here and abroad.
Speaking of economic conditions, the Federal Reserve Open Market Committee (FOMC) will announce a decision on interest rates later today. According to the CME Fed Watch Tool, there is a better than 99% chance interest rates will be left unchanged. However, I think the more important part of today’s announcement will be forward looking guidance. This is the first Fed announcement since the Trump Administration took over and we know President Trump wants lower rates. It will be interesting to hear if and how Fed Chair Powell navigates this situation.
An interesting story in today’s Wall Street Journal discusses an offer to buy out federal workers. Workers in many parts of the federal government are being offered eight months of full benefits to resign their positions. The White House expects anywhere from 5 – 10% of workers to accept the offer and that $100 billion could be saved annually as a result. There are a lot of questions about this offer that remain unanswered, but it is the first step toward reducing the size of the government. It’s also worth noting that acceptance of this offer could lead to an uptick in unemployment, so I’ll be watching to see if and how this is accounted for.
Heading into today, ASML Holdings is out with earnings. The AI chipmaker reported strong demand for chips, helping to soothe investor concerns about momentum in the sector. That stock is higher by more than 5% in premarket. I’m going to be watching the AI sector overall to see how it trades ahead of Meta and Microsoft earnings as I think a lot is riding on this week’s earnings. Shares of Meta are quietly up 15% this year alone, while Microsoft is up 5%. Those are big moves in a very short period of time. While Tesla is relatively unchanged on the year, options market is pricing in a 7.5% potential move in the stock following its earnings. As always, I would stick with your investing plans and long-term strategy.
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