Economic Data and Market Highlights
The US equity markets ended with mixed results as the DJIA rose just 27 basis points while the S&P 500 tumbled 99 basis points. The S&P 500’s Information Technology sector tumbled 4.55% as DeepSeek, a leading Chinese AI startup, made waves after the company utilized roughly a $5.6 million budget to train its models with similar results as leading tech firms such as Open AI. It called into question the massive infrastructure expenditures of those leading U.S. tech firms. Following its launch, DeepSeek’s chatbot quickly became the most downloaded app on Apple’s App Store, sparking a sharp sell-off in AI stocks, with Nvidia alone seeing nearly $600 billion in market value erased in a single day. This development raised questions about the future of AI leadership, efficiency in model training, and the competitive landscape for major technology firms. U.S. officials are now investigating whether DeepSeek circumvented American export restrictions by acquiring advanced Nvidia semiconductors through third-party firms in Singapore. Despite U.S. export controls on cutting-edge chips to China, DeepSeek’s recent success with its R1 AI model has raised questions about its hardware sourcing. Nvidia stated that it requires partners to comply with all applicable laws and will act accordingly if provided with information suggesting otherwise.
With much of the attention devoted to DeepSeek and the Trump Administration’s policies related to immigration and spending freezes related to DEI, few headlines were devoted to the Fed’s decision to leave rates unchanged. Jobless claims reported Thursday came in slightly lower than expected, and the closely watched Core PCE reported Friday came in on target.
Bank stocks have been in favor since November, with the KBW Nasdaq Indexes of both large and regional banks outperforming the S&P 500 in 2025, up roughly 10% and 6%, respectively, compared to the S&P 500’s 3% return. However, regional banks are starting to see slower loan growth, an important factor as the lack the significant trading and investment banking revenue that large banks have. PNC Financial’s CEO, Chief Executive William Demchak, projected there to be no loan growth in the first quarter despite growing its client base, with clients using less of their available credit lines. Across US commercial banks, loans grew about 2.7% from the end of 2023 to the end of 2024, per Federal Reserve data, which is only slightly higher than the year prior of 2.3%. Loan growth hasn’t been this slow since the end of the 2008 global financial crisis.
Commercial and industrial lending is typically very cyclical and correlated with falling interest rates, deregulation, and slowing inflation. In 2024, banks’ commercial and industrial loans only grew by 1%. Commercial real estate mortgages have been a strength for midsized banks, while credit card loans usually go through bigger banks like JP Morgan or Citi Group. Many banks have been trying to reduce their commercial mortgage exposure due to challenges in the office, retail, and other property spaces. When they come up for renewal, the banks will ask for more money down, which shrinks the size of renewed loans. Commercial real estate loans grew 1.3% in 2024, which is the slowest in a decade. JP Morgan, an example of a larger bank, has seen a reduction in commercial banking loans too, but the bigger banks can make up for it in other ways, like fees from their investment banking arms and lending to non-banks like private credit and alternative asset managers. Many loans arranged on Wall Street leave the borrower highly levered, which is something that is not attractive for traditional banks. The share of corporate debt as a nonmortgage bank loan was around 9%, which is the range it has been in over the past decade but still below the 20% range it was in the 1990s. Banks relying on purely lending may need to change the way they do business to evolve to the new market environment.
Sources: WSJ, Federal Reserve
Goldman Sachs is warning that Europe’s CCC-rated corporate bonds are facing a major refinancing issue, with over 30% of outstanding debt maturing by the end of 2026. Current refinancing costs are more than double the existing coupon rates, making defaults likely to increase over the next year unless credit spreads tighten. This coincides with the continuing reduction in German Industrial Production forecasts noted in the chart below:
In contrast, the U.S. high-yield market looks more stable, with debt refinancing costs considered manageable under moderate economic growth. So far in 2025, junk bond issuance has been weak—U.S. firms issued $14 billion in January, while European firms issued €6 billion ($6.23 billion), both below historical averages. Despite low issuance, strong investor demand has driven U.S. CCC bond yields down 40 basis points to 9.76%, while European CCC yields remain above 13%. Goldman analysts say the slowdown in new issuance is due to issuers holding off on selling debt because of high borrowing costs rather than weak investor demand.
Despite some negative indicators, a recent survey from Bank of America points to a rotation away from US stocks into defensive Eurozone issues. To that end, developed markets advanced 1.86% for the week and are up 5.41% on a year-to-date basis. While emerging markets were up 1.34%, Chinese trading was closed for most of the week in celebration the Chinese New Year.
The Past Week’s Notable US data points (with revisions)
The Upcoming Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Jim Bianco Research, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director
Michael McNamara, Analyst
Sam Morris, Analyst