Deepseek's BIG WEEK + A New Interview with Samantha Russell & more

President Trump kick-started the MAGA agenda on Day 1 with 5 important quotes that set the tone for the next 100 days. These are particularly important because they outline the broad principles by which he intends to govern, appealing to free-marketeers who should benefit from his liberated economy.

Overall, 2024’s returns were primarily driven by multiple expansion, not earnings growth. Rolling Q3 data from S&P illustrates the point most dramatically. At that time in Q3, 75% of the 30+ percent return in the market was driven by multiples. To be fair, the year-on-year returns have come down, and earnings growth for the final year is a bit higher, but you see the point: For much of the year, 2024’s gains didn’t look “justified” by its earnings growth. It was a top quartile dislocation, with data back to the 1930s.

The S&P 500 Index ended 2024 up 25%?in U.S. dollar terms, after topping 26% in 2023. Whether this year will be a three-peat of stellar market gains is unclear, but a handful of promising investment themes could support long-term gains. Here, our economist and portfolio managers highlight five key insights for investors in 2025 and beyond.

First, everyone is suddenly an expert on DeepSeek and AI in general. Yes, there are certainly potential consequences to an AI that can potentially run more efficiently than other large-language models (LLMs). There are also many benefits that will come from increased competition. The latter was a point we discussed on Monday’s Real Investment Show: DeepSeek just started the “CyberSpace Race.”

The introduction of DeepSeek’s R1, a Chinese-based artificial intelligence (AI) reasoning model, represents a significant advancement in the AI industry. The market’s reaction was swift, with the tech sector declining amid concern that this less-expensive model might disrupt the more established AI players. To learn more about DeepSeek and the implications, I spoke with Franklin Equity Group CIO Jonathan Curtis, an expert on AI and its implications for investors. Here, I share highlights of our conversation.

As investors look to 2025, a number?of key themes — from a second Trump?administration to record US corporate profitability to widespread adoption of groundbreaking scientific advances — are expected to shape macro and market conditions. Under a second Trump administration, investors expect that the United States will undergo several major policy shifts around trade, tariffs and immigration, to name a few. These shifts will not only have major ramifications for the local macro and market environment but also on the rest of the world.

The best laid plans of mice and men. Above the Noise had been slated to begin with a conversation on inflation. It’s just my luck that our publication date coincided with DeepSeek, a Chinese artificial intelligence (AI) firm, announcing that it had released an open-source AI model that took only two months and less than $6 million to create.1 Those claims would be far less than the hundreds of billions of dollars that American tech giants such have poured into developing their own models. American businessman Marc Andreessen called it the “AI Sputnik moment.”

Last week, President Trump made the threat to impose tariffs at the start of next month on the U.S.'s biggest three trading partners (Mexico, Canada, and China)—yet the market response was positive. Global stocks, represented by the MSCI World Index, rose every day last week, even the stock markets of Canada and Mexico are up solidly for this year (MSCI Canada and MSCI Mexico, respectively).

The traditional role of Treasurys as a safe-haven asset has eroded. For example, Treasury prices fell in the last quarter of 2024 despite escalating geopolitical tensions in the Middle East, concerns about global economic growth, and heightened political uncertainty in developed nations. This weakening in the demand for Treasurys was largely driven by investor anxieties over the future rate of inflation and the widening budget deficit. For many market participants, concerns about the outlook for Treasurys have fueled a resurgence of interest in the Magnificent 7 as a target for safe-haven flows.

Top Performing

1. Eason Technology Ltd. (DXF): This China-based company experienced a significant surge, with its American Depositary Receipts (ADRs) climbing ▲168% to $20.79.
2. Trinity Biotech PLC (TRIB): Headquartered in Ireland, Trinity Biotech saw its ADRs soar ▲79% to $1.36, reflecting significant investor interest.
3. Akero Therapeutics (AKRO): The pharmaceutical firm focusing on metabolic illnesses reported positive results from a Phase 2b study of its experimental treatment for liver disease, leading to a ▲100% increase in its stock price.
4. Royal Caribbean Group (RCL): The cruise line operator reported better-than-anticipated earnings and provided strong guidance, resulting in its stock becoming the best-performing in the S&P 500.
5. AT&T (T): The telecommunications giant posted better-than-expected results, driven by growth in its subscriber base, making it the top performer in the S&P 500 during the period.

Bottom Performing

1. Nvidia Corporation (NVDA): The semiconductor giant experienced a significant decline, with its stock plunging ▼13% in a single day, erasing $465 billion in market value. This drop was primarily due to concerns over competition from a new AI application by Chinese startup DeepSeek.
2. United Parcel Service, Inc. (UPS): UPS shares fell ▼14% after the company announced plans to reduce volumes from Amazon.com, marking its worst day on record.
3. Walgreens Boots Alliance, Inc. (WBA): The pharmacy chain's stock declined significantly, contributing to its position as one of the worst-performing large-cap companies during the week.
4. Moderna, Inc. (MRNA): The biotechnology firm's stock has been underperforming, with a notable decline over the past six months, making it one of the worst performers in the S&P 500.
5. Boeing Company (BA): Boeing reported its second-largest annual loss on record, leading to a significant drop in its stock price. The losses were attributed to production stability issues and other operational challenges.

This week, the investment industry experienced several noteworthy developments:

Political Developments Impacting Markets:

• Anticipation of Conservative Government: Equity investors are expressing optimism as Canada's upcoming election is expected to usher in a Conservative government led by Pierre Poilievre. The proposed business-friendly policies and potential for reduced trade uncertainties with the U.S. are anticipated to enhance investor confidence and boost valuations on the Toronto Stock Exchange (TSX).

Industry Reports and Milestones:

• ETF Assets Surpass $500 Billion: The Investment Funds Institute of Canada (IFIC) released its 2024 Investment Funds Report, highlighting a significant milestone where Exchange-Traded Fund (ETF) assets crossed the $500-billion mark, reflecting a substantial 35.5% increase in assets.

Regulatory and Legal Updates:

• Extension of Comment Periods: Canadian securities regulators have extended the comment periods for proposals related to investment fund continuous disclosure modernization and the principal distributor model, allowing for more comprehensive industry feedback.

Corporate Activities:

• OneDigital's Expansion into Canada: U.S.-based firm OneDigital announced its investment in PWL Capital, marking its entry into the Canadian market and signaling a commitment to expanding wealth management services across borders.
• Leadership Appointments:

• Capital Markets Taskforce Expansion: Erin Platts, CEO of Octopus Ventures, and Lisa Gordon, Chair of Cavendish, have joined the UK's Capital Markets Industry Taskforce (CMIT). Established in 2022 by London Stock Exchange CEO Dame Julia Hoggett, CMIT aims to revitalize the UK's capital markets. The inclusion of Platts and Gordon is expected to bring fresh perspectives to the taskforce's initiatives.

Investor Engagement:

• Record Shareholder Participation: A record number of Hargreaves Lansdown clients have actively participated in voting concerning the dispute between U.S. activist investor Saba Capital and seven UK investment trusts. This unprecedented level of engagement underscores the growing influence of retail investors in corporate governance matters.

Industry Recognition:

• Wealth Management Influencers: Barron's Advisor has identified ten key figures poised to shape the wealth management sector in 2025. Notables include Paul Atkins, anticipated to lead the SEC under President-elect Trump, and Mike Durbin of Cetera Holdings, who is strategizing significant expansions. These leaders are expected to drive transformative changes in the industry.

Regulatory Insights:

• MiFID II Research Costs Debate: Patrick Thomson, JPMorgan's EMEA funds chief, has expressed concerns over the UK's potential reversal of MiFID II regulations, which currently require asset managers to absorb research costs. Thomson believes that reverting to passing these costs onto clients would be "extremely painful" and could disrupt the industry's current dynamics.

Global Investment Trends:

• Australian Super Funds' Offshore Ventures: Facing limited domestic opportunities, Australian superannuation funds are increasingly investing abroad. For instance, AustralianSuper has acquired a 50% stake in a €1.4 billion European industrial and logistics portfolio, signaling a strategic move to diversify and capitalize on international markets.

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