💰 5 Fact Friday: The Startup That Erased $1.5 Trillion

ECONOMY
1. Powell Ignores Trump’s Rate Cut Demands 🥊

The Federal Reserve’s January meeting wrapped up with a decision that surprised exactly no one—rates are staying put.

After three straight cuts in 2024, Jerome Powell and crew are now in watch mode, waiting for clearer signals from inflation, the labor market, and government policy. “We’re not on any preset course,” Powell said, reinforcing that the Fed isn’t in a hurry to cut again.

But while Powell is patient, President Trump is not.

At Davos, Trump demanded lower rates—arguing they should be dropping worldwide. On Truth Social, he outlined his plan to tame inflation and justify cuts through regulatory rollbacks, energy production, and trade rebalancing.

Meanwhile, Powell refused to engage. When asked if he had spoken with Trump, he responded, “I’ve had no contact.” He reiterated that the Fed will act based on data, not political pressure.

Fortunately, there’s another way to lower rates: DOGE. By cutting government spending and reducing inflation expectations, the administration could bring down long-term rates without Fed intervention.

Lower rates wouldn’t just help businesses, homebuyers, and investors—they’d also be a lifeline for the federal government itself.

Interest on the national debt is now the fastest-growing part of the budget and the second biggest expense. As the U.S. edges closer to a debt spiral—where rising debt pushes borrowing costs even higher—lower rates would help slow the cycle.

For now, Powell is holding firm. The next Fed meeting is in March, and until then, it’s a game of wait and see.

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MARKETS
2. DeepSeek Sparks $1.5 Trillion Sell-Off 💣

Monday’s sell-off was one for the history books. The S&P 500 fell 1.5%, the Nasdaq tumbled 3.1%, and over $1.5 trillion in market value vanished.

The biggest casualty? Nvidia (-17%), wiping out nearly $600 billion in market cap—the largest one-day loss ever for a U.S. company. But chipmakers and energy stocks were hit across the board.

Why The Panic?

The sell-off was triggered by DeepSeek. The previously little-known Chinese AI startup claims to have trained a ChatGPT-level model for just $5.6M—a fraction of the billions spent by OpenAI and Google. Their app even dethroned ChatGPT as the top free app on Apple’s App Store.

This matters because, until now, AI innovation was thought to require ever-increasing computing power—meaning bigger clusters of high-end GPUs. Elon Musk’s Colossus supercomputer, packed with 100,000 Nvidia chips, is a prime example of the AI arms race.

But if DeepSeek’s claims hold up, AI development may need fewer chips and less energy than previously thought

This Might Not Be Bad News For Nvidia

Skepticism remains. Some noted the $5.6M figure excludes key R&D costs. Others believe DeepSeek illegally trained on OpenAI’s data.

Regardless, Jevons Paradox suggests this breakthrough could be a win for chipmakers.

When something becomes cheaper and more efficient, demand often surges. If AI models become more accessible, Nvidia’s chips could be used in far more applications—expanding the market instead of shrinking it.

Who Really Benefits?

If AI gets cheaper to develop and access, competition among models will intensify, pushing costs down and squeezing technology providers like OpenAI.

Instead, value will accrue to AI users—industries like finance and healthcare that can leverage AI to boost productivity and improve margins.

For now, markets are adjusting to this potential reality—and wrestling with what AI’s next chapter actually looks like.

MARKETS
3. The Equity Risk Premium Is Flashing Red 📉

Stocks are supposed to offer higher returns than bonds—that’s the whole reason investors take on extra risks like:

• Volatility – Stocks swing wildly, bonds don’t.

• No guaranteed return – Bonds pay fixed interest, stocks don’t.

• Company risk – Businesses can go bankrupt; the U.S. government (historically) does not.

The equity risk premium (ERP) measures this difference by subtracting the yield on 10-year Treasury bonds from the earnings yield of the S&P 500.

When the ERP is high, stocks look attractive relative to bonds. When it's low—or negative—investors start wondering why they should take on extra risk at all.

Not Quite Dot-Com Bad

In December, the ERP turned negative for the first time since 2002. Now, it’s sitting at -0.2%.

At the height of the dot-com bubble, the ERP hit -2.9%, but back then:

• The 10-year Treasury yield was 6.7% (vs. ~4.5% today).

• The S&P 500 was even more expensive than it is now.

While “not as bad as 2000” isn’t exactly a bullish argument, it does highlight that we’re a long way from an environment where bonds pull massive amounts of capital out of equities.

But Valuations Are High—And That Matters

A low ERP doesn’t force a market correction, but historically, high valuations have been linked to lower future returns.

There’s an argument that today’s companies deserve higher valuations—better cash flows, stronger return on capital, and more durable business models. But history is littered with “new paradigm” narratives that justified stretched valuations—until they didn’t.

Mean reversion isn’t a law, but betting against it has rarely ended well.

For now, investors seem comfortable with the risk-reward tradeoff. But if Monday’s selloff proved anything, it’s that confidence can evaporate in an instant—and when it does, the stampede out of stocks can be swift and brutal.

STOCKS
4. Earnings At A Glance 📊

From surging profits to stock sell-offs, this week’s earnings reports delivered plenty of market-moving action. Let’s break down the key takeaways.

Meta ($META)
Revenue jumped 21% and net income surged 49%, but a slowdown in Q1 revenue growth and rising capital expenditures ($60B-$65B for AI investments) tempered enthusiasm. Meanwhile, Meta’s AI chatbot hit 700M monthly active users and Zuckerberg remains bullish on scaling to 1B users by year-end.

Microsoft ($MSFT)
Beat revenue and earnings estimates, but cloud growth fell short, sending shares down 6%. AI accounted for 13 percentage points of Azure growth, but cloud gross margins dipped as Microsoft scales its AI infrastructure. The company also added DeepSeek’s R1 model to Azure, despite its relationship with OpenAI.

Tesla ($TSLA)
Missed revenue estimates and saw operating income fall 23% year-over-year, with auto sales down 8%. Despite the weak performance, shares opened higher as Tesla reaffirmed a "return to growth" in 2025, driven by cheaper EVs and unsupervised self-driving. A $600M Bitcoin gain provided a financial boost, while plans to license its self-driving tech signal a push for new revenue streams.

Apple ($AAPL)
Despite missing revenue expectations, profit beat forecasts, rising 7% to $36.3B. iPhone sales (-0.8%) continue to struggle, especially in China (-11%). Apple Intelligence has yet to drive an upgrade cycle—as 73% of iPhone owners don’t see value in the new features. However, strong services growth (+14%) from apps like Apple Music and Apple TV+ helped stabilize results.

General Motors ($GM)
Beat Q4 expectations but shares tumbled 9% on tariff fears. Trump’s proposed 25% auto tariffs on Mexico and Canada threaten GM’s high-margin truck business, which relies on cross-border manufacturing. If margins get squeezed, it could impact cash flow—and with it, the stock buybacks that fueled GM’s 50% gain in 2024.

T-Mobile ($TMUS)
Delivered strong Q4 results, sending shares up as much as 9%—their biggest jump in nearly three years. The company added 1.9M postpaid net customers, fueled by record-low churn and strong growth in high-speed internet subscribers. T-Mobile also raised 2025 guidance, projecting up to 6M new monthly subscribers and expanding into satellite mobile connectivity via its SpaceX partnership.

JetBlue ($JBLU)
Stock nosedived 26% as rising costs overshadowed a smaller-than-expected Q4 loss. The airline now expects costs per available seat mile (excluding fuel) to jump 5%-7% in 2025, above analyst forecasts. Despite JetBlue’s ongoing efforts to improve efficiency, investors see little near-term relief ahead.

STOCKS
5. Guess That Stock 🕵️‍♂️

This iconic brand is brewing up a comeback after four straight quarters of declining same-store sales. Can you name the company?

1. Its new CEO has already earned $96M since September, much of it in stock to replace the Chipotle shares he forfeited when making the switch.

2. The business posted $781M in net income last quarter—beating expectations but still down 23% year-over-year.

3. To speed up service, the company is trimming 30% of its menu and adding more staff.

4. To bring back its old charm, the brand is restoring condiment bars, handwritten names on cups, and cozier seating—while restricting bathroom access to paying customers.

5. As the largest U.S. coffee importer, the company is balancing rising bean costs with a pledge to hold off on price hikes.

Got a guess? Tap here to reveal the answer → 

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