DeepSeek Deep Sixes the Stock Market. How Far the S&P 500 Could Fall
3 min
DeepSeek just might derail the stock market’s rally.
The S&P 500 hasn’t had a correction , a 10% pullback from a high, since October 2023. Investors kept buying throughout 2024 despite angst surrounding the Federal Reserve and interest rates, not to mention numerous international concerns.
But now, worries about cheaper artificial intelligence models from the Chinese-developed app named DeepSeek may be the excuse that investors were waiting for to finally sell shares in earnest. Stocks plunged Monday .
The declines were biggest in ing tech companies, such as Nvidia , Broadcom and Microsoft . But other sectors, namely manufacturing and the utility or energy stocks that have big ties to the AI theme, were hit hard as well
The S&P 500 and Nasdaq Composite tumbled 1.5% and more than 3% respectively. The Dow Jones Industrial Average , which is less exposed to tech, gained nearly 300 points, or 0.7% .
The market is now closer to correction territory than it has been since August , when worries about a surge in the value of the Japanese yen versus the dollar spooked investors and led to a spike in volatility. But the major stock indexes still have a way to go before the declines from their peaks reach 10%.
The S&P 500 ended Monday at around 6012 , putting it just 2% below its record high. The blue-chip index would need to fall another 8% to just above 5500 to reach correction status. The Nasdaq is closer: It has fallen more than 4% from its peak and is 6% above the correction- territory level of 18,156.50.
But even before Monday’s DeepSeek bombshell, there were growing concerns that stocks may head into a correction. Barry Bannister, chief equity strategist at Stifel, recently reiterated a July call for the S&P 500 to fall 10% from its peak. He thinks it will drop to about 5500 later this year.
Bannister has been fairly bearish for the better part of a year. He said in a report Sunday that there is too much optimism about fiscal stimulus from President Donald Trump; the notion of American exceptionalism, or that stocks here have better prospects because the U.S. economy is more innovative and entrepreneurial; and hype about the Magnificent Seven of tech.
Bannister worries that core inflation and longer-term bond yields will remain higher for longer, creating a “a mild case of stagflation”—the dreaded combination of stagnant growth and persistent inflation. That may mean fewer Fed rate interest-rate cuts until the economy actually weakens, “which itself is not bullish,” Bannister wrote.
Trump’s threat of tariffs and stricter immigration policies, which would boost the cost of imported goods and potentially drive wages higher by curtailing the supply of labor, may also stoke fear of more persistent inflation.
So what should investors do now?
Bannister argues that “defensive value” stocks, such as healthcare and consumer staples companies, should outperform. Investors seem to agree: Both the Health Care Select Sector SPDR and the Consumer Staples Select Sector SPDR exchange-traded funds were up more than 2% as the broader market fell on Monday.
Bannister likes utilities too, but that sector is trickier. The group as a whole sank Monday, led lower by significant drops in Vistra and Constellation Energy , the two utilities that have gotten the biggest boost from AI’s demand for energy. But shares of classic, less exciting, regulated utilities, such as Duke Energy, Dominion Energy, and Xcel Energy , rallied. All three stocks have big dividend yields.
Dividend payers across all sectors could hold up better in a suddenly more volatile market. Simeon Hyman, global investment strategist with ProShares , told Barron’s that companies that pay dividends tend to be more stable. Companies may pull back on plans to buy back more stock or invest in their future if conditions change, but with rare exceptions “once you commit to dividend growth, you stick with it,” he said.
The SPDR S&P Dividend ETF and ProShares S&P 500 Dividend Aristocrats ETF , which recently added FactSet Research System , Erie Indemnity , and Eversource Energy to the fund, were both up nearly 2% Monday.
Still, even investors in dividend stocks need to be wary. There could be more downside ahead for the broader market. Simply put, stocks are arguably long overdue for a correction.
“The last time the market entered an official correction was 309 trading days ago, spanning well beyond the average number of 173 trading days without a correction since 1928,” Adam Turnquist, chief technical strategist for LPL Financial , said in a report last week.
There is a case to be made that there was too much optimism on the part of investors. Katie Stockton, founder and managing partner of Fairlead Strategies, noted that the Cboe Volatility Index, known as Wall Street’s fear gauge, recently fell to levels in the midteens from a three-month high of nearly 28 in mid-December. She thinks a VIX reading that low was reflecting complacency. The VIX surged to just under 20 Monday.
Stockton now thinks that Monday’s market pullback could lead to more downside for the next few weeks. She said investors should keep an eye on two key technical support levels for the S&P 500: the closing level of about 5783 that it traded at on Election Day, and if stocks dip below that, the 200-day moving average of 5608.
Remember, the level that would bring the market into correction territory is just above 5500, in flirting distance from the 200-day average.
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Records keep falling in 2025 as harbourfront, beachfront and blue-chip estates crowd the top of the market.
A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.
JPMorgan Chase has a ‘strong bias’ against adding staff, while Walmart is keeping its head count flat. Major employers are in a new, ultra lean era.
3 min
It’s the corporate gamble of the moment: Can you run a company, increasing sales and juicing profits, without adding people?
American employers are increasingly making the calculation that they can keep the size of their teams flat—or shrink through layoffs—without harming their businesses.
Part of that thinking is the belief that artificial intelligence will be used to pick up some of the slack and automate more processes. Companies are also hesitant to make any moves in an economy many still describe as uncertain.
JPMorgan Chase’s chief financial officer told investors recently that the bank now has a “very strong bias against having the reflective response” to hire more people for any given need. Aerospace and defense company RTX boasted last week that its sales rose even without adding employees.
Goldman Sachs , meanwhile, sent a memo to staffers this month saying the firm “will constrain head count growth through the end of the year” and reduce roles that could be more efficient with AI. Walmart , the nation’s largest private employer, also said it plans to keep its head count roughly flat over the next three years, even as its sales grow.
“If people are getting more productive, you don’t need to hire more people,” Brian Chesky , Airbnb’s chief executive, said in an interview. “I see a lot of companies pre-emptively holding the line, forecasting and hoping that they can have smaller workforces.”
Airbnb employs around 7,000 people, and Chesky says he doesn’t expect that number to grow much over the next year. With the help of AI, he said he hopes that “the team we already have can get considerably more work done.”
Many companies seem intent on embracing a new, ultralean model of staffing, one where more roles are kept unfilled and hiring is treated as a last resort. At Intuit , every time a job comes open, managers are pushed to justify why they need to backfill it, said Sandeep Aujla , the company’s chief financial officer. The new rigor around hiring helps combat corporate bloat.
“That typical behavior that settles in—and we’re all guilty of it—is, historically, if someone leaves, if Jane Doe leaves, I’ve got to backfill Jane,” Aujla said in an interview. Now, when someone quits, the company asks: “Is there an opportunity for us to rethink how we staff?”
Intuit has chosen not to replace certain roles in its finance, legal and customer-support functions, he said. In its last fiscal year, the company’s revenue rose 16% even as its head count stayed flat, and it is planning only modest hiring in the current year.
The desire to avoid hiring or filling jobs reflects a growing push among executives to see a return on their AI spending. On earnings calls, mentions of ROI and AI investments are increasing, according to an analysis by AlphaSense, reflecting heightened interest from analysts and investors that companies make good on the millions they are pouring into AI.
Many executives hope that software coding assistants and armies of digital agents will keep improving—even if the current results still at times leave something to be desired.
The widespread caution in hiring now is frustrating job seekers and leading many employees within organizations to feel stuck in place, unable to ascend or take on new roles, workers and bosses say.
Inside many large companies, HR chiefs also say it is becoming increasingly difficult to predict just how many employees will be needed as technology takes on more of the work.
Some employers seem to think that fewer employees will actually improve operations.
Meta Platforms this past week said it is cutting 600 jobs in its AI division, a move some leaders hailed as a way to cut down on bureaucracy.
“By reducing the size of our team, fewer conversations will be required to make a decision, and each person will be more load-bearing and have more scope and impact,” Alexandr Wang , Meta’s chief AI officer, wrote in a memo to staff seen by The Wall Street Journal.
Though layoffs haven’t been widespread through the economy, some companies are making cuts. Target on Thursday said it would cut about 1,000 corporate employees, and close another 800 open positions, totaling around 8% of its corporate workforce. Michael Fiddelke , Target’s incoming CEO, said in a memo sent to staff that too “many layers and overlapping work have slowed decisions, making it harder to bring ideas to life.”
A range of other employers, from the electric-truck maker Rivian to cable and broadband provider Charter Communications , have announced their own staff cuts in recent weeks, too.
Operating with fewer people can still pose risks for companies by straining existing staffers or hurting efforts to develop future leaders, executives and economists say. “It’s a bit of a double-edged sword,” said Matthew Martin , senior U.S. economist at Oxford Economics. “You want to keep your head count costs down now—but you also have to have an eye on the future.”
A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.
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