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“Music has the power to ignite a spark within you, to awaken your passion and purpose.” – Roberta Flack (Feb. 10, 1937 – Feb. 24, 2025)
Chart of the Day
Good morning!
“When brute force fails, use more brute force.” This satiric bit of advice seems to have guided the public view on AI research in the months since OpenAI first dropped jaws with the release of its generative AI chatbot, ChatGPT. The thinking seemed to focus on just doing the same thing again, but on steroids this time: bigger data centers powered by computers running even more advanced chips, crunching through even larger pools of content and data – more and more and more and … well, you get the idea.
Now, AI researchers are now running up against diminishing returns. Last November, OpenAI reportedly found that with each succeeding generation, its methods were yielding smaller improvements. It was apparently no different at Google.
So what’s the alternative? There doesn’t seem to be a clear answer at the moment, but it might emerge from the rise of Chinese startup DeepSeek and its R1 AI model, though not necessarily because of its impressive-if-true claims. DeepSeek notably moved to make its model more-or-less open-source, allowing anyone in the world to examine its training methodology and model weights. The company has promised to go further later this week, sharing its code repositories and the training datasets used on R1. As Dr. Ng S.T. Chong, chief of information technology at United Nations University, argued, such a heightened “level of accessibility fosters increased competition and drives innovation within the AI sector, which may compel closed-source models to adapt by reducing costs or enhancing transparency.”
It might appear that a closed-source model presents the easier way to monetize innovation, but even OpenAI’s Sam Altman is having second thoughts about that. In a recent Reddit AMA, he remarked, “I personally think we have been on the wrong side of history here and need to figure out a different open source strategy,” though he added that it’s “not our current highest priority.”
Former Google CEO Eric Schmidt likely wishes rather Altman and his California-based counterparts would hurry up. Otherwise, “China will ultimately become the open-source leader,” and European businesses might turn to Chinese models in order to develop AI applications.
If the tycoons of Silicon Valley need further encouragement, they might wish to recall the history of Linux to see how an open-source approach might lead to rising tides lifting all boats, albeit unpredictably. In 1991, the now-legendary Linus Torvalds announced that he was going to make a free operating system – “just for fun,” he famously insisted. Over the next quarter century, upwards of 13,500 developers – some just fellow enthusiasts, and many developers working for private-sector companies, jumped in to write code, parse it, debug it, and suggest new ideas available for all to use and play with.
The result was Linux, a now-ubiquitous open-source operating system. Today, customized versions run on the cloud-computing servers of Amazon, Microsoft, and Google, as well as many of the world’s Internet routers, switches, and networking devices. Linux distributions run the touchscreen displays in autos made by Tesla, Audi, BMW, Daimler, Ford, Honda, Hyundai, Mazda, Nissan, Renault, Subaru, Suzuki, and Toyota. Linux also formed the basis for the Android mobile operating system, not to mention a broad range of IoT devices. And oh yeah: the NYSE, along with the stock exchanges of London, Germany, and Toronto also run on Linux. As Arvind Jain, CEO of the workplace AI platform Glean told CNBC, “Open source always wins in the tech industry.”
Catch Up With Fundstrat
We have several important developments to highlight, including a continued pullback in momentum, renewed policy risk, upcoming earnings from Nvidia, and crucial macro data that could shift the Fed’s rate trajectory. Momentum continues to weaken, but at a slower pace
TECHNICAL
Minor consolidation in SPX, QQQ looks close to bottoming. Market breadth has not turned down sufficiently to warrant a bearish stance. On the other hand, pharmaceutical stocks could strengthen more given DRG index breakout.
CRYPTO
We break down the recent price action across altcoins, examine why RAY might merit reconsideration in our Core Strategy portfolio, and highlight a couple of silver linings that could signal a brighter outlook for bulls (eventually).
News We’re Following
Markets and economy
U.S. Treasury yields tick lower as investors look toward key home-price data CNBC
Trump says tariffs on Canada and Mexico ‘will go forward,’ more to come AP
Trump Team Seeks to Toughen Biden’s Chip Controls Over China BBG
Business
Major Asia bank to cut 4,000 roles as AI replaces humans BBC
Anthropic says it’s released its ‘most intelligent’ AI model yet as competition ramps up CNBC
Starbucks axes 1,100 jobs in bid for US turnaround BBC
Hims & Hers shares tumble 18% as margin miss adds to concerns about GLP-1 business CNBC
Unilever CEO Schumacher to step down after less than two years in the job CNBC
Politics
Macron emphasizes European defense readiness in key Trump meeting SEM
Federal worker unions sue Musk over demand they justify their jobs BBC
Overseas
U.S. Wins Backing for U.N. Resolution on Ukraine War That Doesn’t Blame Russia WSJ
Hong Kong’s main opposition party announces plan to dissolve BBC
Of Interest
Roberta Flack, Virtuoso Singer-Pianist Who Ruled the Charts, Dies at 88 NYT
Lester Holt, Longtime ‘NBC Nightly News’ Anchor, Will Depart Show WSJ
| Overnight |
| S&P Futures -14
point(s) (-0.2%
) Overnight range: -21 to +15 point(s) |
| APAC |
| Nikkei -1.39%
Topix -0.43% China SHCOMP -0.8% Hang Seng -1.32% Korea -0.57% Singapore -0.3% Australia -0.68% India -0.03% Taiwan -1.19% |
| Europe |
| Stoxx 50 -0.06%
Stoxx 600 +0.31% FTSE 100 +0.44% DAX +0.08% CAC 40 +0.01% Italy +0.53% IBEX +0.77% |
| FX |
| Dollar Index (DXY) +0.07%
to 106.67 EUR/USD +0.04% to 1.0472 GBP/USD +0.02% to 1.2628 USD/JPY +0.01% to 149.73 USD/CNY +0.26% to 7.2655 USD/CNH +0.19% to 7.2669 USD/CHF -0.11% to 0.8961 USD/CAD +0.04% to 1.4265 AUD/USD -0.31% to 0.633 |
| Crypto |
| BTC -6.49%
to 87860.6 ETH -9.19% to 2394.09 XRP -10.12% to 2.1253 Cardano -9.64% to 0.6448 Solana -9.09% to 136.44 Avalanche -4.07% to 20.99 Dogecoin -7.8% to 0.2022 Chainlink -8.35% to 14.62 |
| Commodities and Others |
| VIX +3.95%
to 19.73 WTI Crude +0.04% to 70.73 Brent Crude -0.05% to 74.74 Nat Gas -0.28% to 3.98 RBOB Gas +0.7% to 2.025 Heating Oil +0.35% to 2.444 Gold -0.4% to 2940.06 Silver -0.43% to 32.21 Copper +0.25% to 4.526 |
| US Treasuries |
| 1M -2.1bps
to 4.2871% 3M -1.8bps to 4.2709% 6M -3.2bps to 4.2925% 12M -3.8bps to 4.1053% 2Y -5.2bps to 4.1229% 5Y -6.0bps to 4.175% 7Y -6.0bps to 4.2563% 10Y -5.8bps to 4.3424% 20Y -4.7bps to 4.6423% 30Y -4.6bps to 4.6094% |
| UST Term Structure |
| 2Y-3
M Spread narrowed 6.0bps to -18.7
bps 10Y-2 Y Spread narrowed 0.8bps to 21.5 bps 30Y-10 Y Spread widened 1.2bps to 26.5 bps |
| Yesterday's Recap |
| SPX -0.5%
SPX Eq Wt +0.08% NASDAQ 100 -1.21% NASDAQ Comp -1.21% Russell Midcap -0.26% R2k -0.78% R1k Value +0.1% R1k Growth -1.03% R2k Value -0.55% R2k Growth -0.99% FANG+ -1.95% Semis -2.63% Software -1.24% Biotech -1.73% Regional Banks -0.73% SPX GICS1 Sorted: Healthcare +0.75% Fin +0.45% REITs +0.36% Energy +0.11% Cons Staples +0.1% Materials -0.18% Indu -0.44% SPX -0.5% Utes -0.51% Comm Srvcs -0.63% Cons Disc -0.87% Tech -1.43% |
| USD HY OaS |
| All Sectors +1.8bp
to 321bp All Sectors ex-Energy +1.1bp to 300bp Cons Disc +2.4bp to 292bp Indu +1.6bp to 239bp Tech +2.4bp to 324bp Comm Srvcs +2.9bp to 510bp Materials +3.0bp to 281bp Energy +3.6bp to 305bp Fin Snr +2.0bp to 271bp Fin Sub +2.8bp to 210bp Cons Staples +0.5bp to 294bp Healthcare -8.4bp to 348bp Utes +1.8bp to 229bp * |
| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 2/25 | 10AM | Feb Conf Board Sentiment | 102.5 | 104.1 |
| 2/26 | 10AM | Jan New Home Sales | 680.0 | 698.0 |
| 2/26 | 10AM | Jan New Home Sales m/m | -2.6 | 3.6 |
| 2/27 | 8:30AM | 4Q S GDP QoQ | 2.3 | 2.3 |
| 2/27 | 8:30AM | Jan P Durable Gds Orders | 2.0 | -2.2 |
| 2/28 | 8:30AM | Jan PCE m/m | 0.3 | 0.3 |
| 2/28 | 8:30AM | Jan Core PCE m/m | 0.3 | 0.16 |
| 2/28 | 8:30AM | Jan PCE y/y | 2.5 | 2.6 |
| 2/28 | 8:30AM | Jan Core PCE y/y | 2.6 | 2.79437 |
| 3/3 | 9:45AM | Feb F S&P Manu PMI | n/a | 51.6 |
| 3/3 | 10AM | Feb ISM Manu PMI | 50.5 | 50.9 |