At the end of January, DeepSeek unveiled its AI model, a lower-cost Chinese version of ChatGPT that performed comparably to its US counterpart. This unexpected development caused the S&P 500 to drop by 1.5%.
Fortunately, the market corrected within a few days as more came to light about DeepSeek's development process. Investors also realized that more affordable AI is actually a good thing. While short-lived, this incident highlights a recurring theme in the stock market: unexpected events drive economic and market disruptions.
Most often, we associate these unexpected events with negative developments:
October 2002 (S&P 500 -49%) - Coming out of the 1990s, the world worried potential Y2K fallout while internet companies without profits flew under the radar.
March 2009 (S&P 500 -57%) - Throughout 2007 and 2008, oil prices and conflict in the Middle East dominated headlines while the housing bubble was believed to be contained.
March 2020 (S&P 500 -34%) - Going into 2020, there was general concern about global slowdown in economic growth and inflation below the Fed's 2% target while COVID-19 was making its way across the globe.
But the same effect applies to positive developments:
mRNA Vaccines - These vaccines allowed us to come out of the pandemic and re-start the global economy.
Artificial Intelligence - When ChatGPT became a household name, the practical use for AI became real, paving the way for NVIDIA and other tech companies to unleash a new wave of earnings potential.
GLP-1 Medications (Ozempic, Wegovy, Mounjaro) - These drugs created a breakthrough in the ongoing battle against obesity and diabetes.
Investors spend a lot of time and mental bandwidth worrying about inflation, interest rates, tariffs, and every other headline that dominates financial news. In reality, the true market drivers, both positive and negative, won't come where we expect.
So how do you prepare? You proactively create a balanced portfolio with an investment allocation that matches your individual risk tolerance and time horizon. Then you stick to it. You don't reactively chase returns or sell in fear. Instead, you keep time on your side and let markets do the rest.
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Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.
Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.