WHAT TO DO NOW: The popular AI stocks were hit extremely hard today on fears that the CapEx spending boom could be cut short following the DeepSeek successes, which in turn dragged the major indexes lower. Outside of AI, the damage was reasonable, which is a plus, but with the major indexes still trending sideways and few stocks decisively moving higher, we’re remaining relatively cautious. In the Model Portfolio, we’re forced to quickly cut our loss in Marvell Tech (MRVL), which was caught up in the out-of-the-blue selling storm among AI stocks. Our cash position will now be around 53%.
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The major indexes are falling sharply today, with the S&P 500 off 1.8% and the Nasdaq off more than 3.5% as of 3 pm EST, while many AI infrastructure stocks are effectively crashing, down 20% or more.
The catalyst for today’s huge selloff is DeepSeek, the success of which has called into question whether so-called hyperscalers need to spend hugely on AI infrastructure—which in turn, is crushing that area of the market today. We’ll let others hash out what it all means, but as always, we’ll stay focused on the evidence. Here are our thoughts:
First, the intermediate-term trend of the major indexes is firmly neutral after today’s drop, as the near-buy signal never materialized.
Second, AI stocks: Near-term bounces are possible, but when looking at the intermediate term, we’re less optimistic given the huge runs in many stocks over many months (or longer) and the huge breaks seen today. Yes, this could be a shakeout to “clear the decks,” and we’re all for it if that happens. But for the names that have had gigantic runs over months (or longer) and are obvious to the crowd, the odds favor a correction/consolidation to repair the damage.
Thus, if you own a few of these stocks, we’d favor paring back (though we wouldn’t sell wholesale at this time), focusing more on capital preservation and making sure the damage doesn’t get much worse.
As for the rest of the growth arena, today was down but not abnormal, so our view is pretty much the same as last week. Most names are up from a couple of weeks ago, but there isn’t much decisive bullish action quite yet, though earnings season is still playing out.
Given it all, we remain relatively cautious for now. We did a little buying last week but held onto a 48% cash position in the Model Portfolio. At this point, almost all of our holdings are in a similar stance as they were a couple of days ago.
The exception is Marvell Technology (MRVL), which was one of our new buys last week (obviously unfortunate timing) and was caught up in the DeepSeek selloff today, collapsing below its December low along with most of its peers. It’s possible the stock (and group) bounces from here, but we have to follow the rules—and besides, we want to make sure a bad situation doesn’t get much worse.
We “only” bought a half-sized (5% of the portfolio) stake—painful but not overly damaging to the portfolio as a whole. While it’s a quick turnaround, we’ll cut the loss here and hold the cash. SELL MRVL
As alluded to above, oour other stocks were down today, but not abnormally so, mostly giving back some of the recent rally attempt, so we’ll sit tight with them here. Our cash position will now be in the 53% range.
We’ll have more details on all our thoughts in tonight’s issue. Don’t hesitate to email me directly (mike@cabotwealth.com) if you have any questions.
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