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Nassim Taleb, known for his work on unpredictable market events, has issued a stark warning following Nvidia Corporation's (NVDA) significant stock drop. On Monday, Nvidia experienced a 17% slump, erasing $589 billion from its market value, which Taleb describes as merely the beginning of a broader market adjustment. This selloff was spurred by the rise of DeepSeek, a Chinese AI startup offering a lower-cost alternative to AI development, raising concerns about the future dominance of US tech giants in AI. Taleb, speaking at Hedge Fund Week in Miami, emphasized that investors have been overly focused on a single narrative of Nvidia's continuous growth, ignoring the potential risks and complexities in the AI industry. He suggests that future market corrections could be even more severe, potentially two to three times larger than the recent drop, highlighting the volatile nature of tech stocks and the underestimation of market risks by investors.
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The recent spike in U.K. borrowing costs has brought back memories of the 2022 mini-budget crisis, but this time, pension funds have managed the situation adeptly. Unlike the previous crisis, which saw pension funds on the brink of collapse due to a massive sell-off in U.K. debt, current market conditions have been more stable. Pension providers have not only weathered the volatility in government bonds but have also benefited from it, increasing their liability-driven investments (LDIs). Gilt yields, after reaching their highest levels in decades, have cooled but remain elevated, influenced by global economic trends and reactions to U.K. fiscal policy. The improved governance, higher funding ratios, and lower leverage in pension schemes since 2022 have helped avoid the kind of disruption seen previously. Moreover, higher yields have provided an opportunity for pension schemes to enhance their funding levels, reducing the need for growth assets and increasing stability in the market. Despite these positive developments, the demand for new gilts from pension funds might not increase significantly, as many schemes are already well-hedged.
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ASML, the Dutch semiconductor equipment maker, reported a substantial rise in fourth-quarter net bookings, signaling robust demand for its advanced chipmaking tools. Despite a global tech sell-off triggered by concerns over AI spending due to the introduction of DeepSeek's cost-effective AI model, ASML's shares initially surged by 11% before settling at a 7.4% increase. The company's financial performance exceeded expectations, with net sales and profit both surpassing consensus estimates. ASML's CEO, Christophe Fouquet, expressed optimism about the future, suggesting that lower-cost AI models could lead to increased applications and thus more demand for semiconductors. However, ASML anticipates a normalization of demand in China in 2025, following a period of heightened demand due to U.S. export restrictions. This outlook, combined with ASML's strong order backlog, provides reassurance to investors about the company's valuation and future growth potential.
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U.S. Treasury yields experienced minor fluctuations on Wednesday as the market awaited the Federal Reserve's first interest rate decision of 2025. The 10-year Treasury yield saw a slight decrease to 4.543%, while the 2-year yield edged up to 4.211%. Investors are not anticipating an immediate rate cut, with expectations leaning towards the Fed maintaining the current target range of 4.25% to 4.5%. The decision, to be announced at 2 p.m. ET, will be followed by a press conference from Fed Chair Jerome Powell, where investors will look for indications of future monetary policy directions. Amidst this, President Donald Trump has publicly demanded lower interest rates, highlighting the ongoing tension between him and the Fed. However, former Kansas City Fed President Esther George emphasized the importance of the Fed adhering to its legislative mandate rather than succumbing to political pressures.
