How DeepSeek’s fallout could threaten U.S. consumption, according to strategists

A post-DeepSeek bounce is struggling to take hold for equities on Tuesday, though tech will require much more to recoup from the selloff that punished many of Wall Street’s most influential cohorts.

Citi strategists led by Adam Pickett and his team note how the U.S. equity market is “getting frothier,” with what they call the current bubble growing more comparable to past bubbles. They aren’t ready to call the top, however. “It is always difficult to know the signal of the absolute peak in real-time (in retrospect, the AOL and Time-Warner merger in 2000 was perhaps the clearest sign,)” the strategists say.

Could the sell-off hit the broader economy?

Strategists at Citi say it could. A record 58% of U.S. households held stocks as of 2022, according to Fed data .

As a rule of thumb, a 1% rise in the S&P 500 corresponds to a 0.30% rise in U.S. household financial assets and vice versa, they say.

While there is no “call to action” after just one day of rough markets, they say, continued weakness for the Nasdaq and overall U.S. equity performance will “open up the space for a weaker consumer.”

Others echo this sentiment, with Dennis DeBusschere, president of 22V Research, noting that some are realizing the AI boom has increasing relevance for the macro economy. “AI [capital expenditure] is significant, so the risk to capex and net worth (Nasdaq going down 10% or more) has implications for expected GDP growth,” he said.

Bridgewater Associates founder Ray Dalio told the FT that all the excitement over AI is driving a bubble for U.S. stocks, similar to what was seen in the pre-internet bust years of 1998 and 1999. He says “pricing has got to levels which are high at the same time as there’s an interest rate risk, and that combination could prick the bubble.”

Read: Retail investors bought the DeepSeek dip. Here are JPMorgan’s options trades for bulls or bears .

The markets

Stocks DJIA SPX are flat to just slightly higher for the Nasdaq Composite COMP, with some steam leaving the market after disappointing durable-good data. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are slightly higher and the dollar DXY is getting a boost from President Donald Trump’s tough tariff talk .

Key asset performance	Last	5d	1m	YTD	1y
S&P 500	6101.24	1.74%	2.18%	3.73%	24.74%
Nasdaq Composite	19,954.30	1.65%	1.18%	3.33%	29.11%
10-year Treasury	4.511	-11.90	-3.20	-6.50	43.23
Gold	2773.3	1.53%	5.85%	5.08%	36.43%
Oil	74.8	-2.06%	5.16%	4.08%	-2.83%
Data: MarketWatch. Treasury yields change expressed in basis points

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The buzz

Boeing BA reported a wider core loss than anticipated . General Motors GM reported stronger-than-forecast earnings , while Kleenex tissue maker Kimberly-Clark KMB reported weaker-than-expected results. JetBlue JBLU stock is down after disappointing guidance . Starbucks SBUX reports after the close.

Durable-goods orders fell 2.2% in December against an expected 0.6% gain. The Case-Shiller home price index showed a bump up in house prices. Consumer confidence is due at 10 a.m.

Trump says Microsoft MSFT wants to buy TikTok .

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The chart

This chart from Goldman Sachs shows how tech earnings have outstripped the rest of the market over the past 10 years. We’ll get a first look at those on Wednesday when Microsoft, Meta and Tesla report after the close of trading.

Top tickers

These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:

Ticker	Security name
NVDA	Nvidia
TSLA	Tesla
TSM	Taiwan Semiconductor Manufacturing
GME	GameStop
HOLO	MicroCloud Hologram
META	Meta Platforms
AAPL	Apple
PLTR	Palantir Technologies
AMD	Advanced Micro Devices
MSFT	Microsoft

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