SOTS 2nd Hour: Breaking down the sell-off – and just what is DeepSeek? 1/27/25

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Carl Quintanilla (0:59)

Good Monday morning. Welcome to another hour of Squawk on the Street. I'm Carl Quintanilla with Leslie Picker and David Faber here at Post 9 of the New York Stock Exchange. Sarah Eisen has the morning off. This DeepSeek News has definitely thrown the AI trade into some flux, but we are off the certainly the worst of the pre-market levels. And we do have other areas of the market like small caps starting to show some green arrows. We'll talk all about it.

Leslie Picker (1:19)

And we're 30 minutes into the trading session here. Some big movers we are watching in this market sell-off. NVIDIA poster child of the AI rally, really taking it on the chin this morning on reports that DeepSeek, a China-based open-source AI model, was able to use less advanced chips to create AI tools that compete with the proprietary models of US tech giants, raising questions about the mode for NVIDIA and companies like AI. NVIDIA shares currently down more than 11%.

The entire semiconductor industry also under pressure on the news. Broadcom, Marvell, down double digits. And it's not just the semis. All of the Mag-7, with the exception of Apple, in the red this morning, ahead of key earnings this week, much more on the DeepSeek AI fallout and this market sell-off straight ahead.

Carl Quintanilla (2:06)

We're going to kick off a busy week of economic data with new home sales. Let's get to Rick Santelli. Hey, Rick.

Rick Santelli (2:12)

Yes, these are December new home sales, Carl. Expecting the numbers somewhere in this 675,000 camp. Those are ceasely adjusted annualized units. We come in better. A whisker under 700,000, 698,000. That's the best rate since September of last year. And a positive revision in the rear view mirror. 664,000 becomes 674,000.

This was largely expected a rebound, but do remember the month of December was not friendly for 30-year mortgage rates or interest rates in general if you were looking to finance a home. December saw interest rates climb in the 10-year, and they basically in the 30-year mortgage fixed arena saw mortgages above 7% pretty much for the entire month. For more, a dig deeper into this number, let's head east to Diana Olek. Diana?

Diana Olick (3:07)

Rick, it's really interesting that we got a beat on this number. Remember, new home sales are based on signed contracts during the month. So it's the most current indicator that we get of what's going on in the market. And as Rick said, we did see mortgage rates go up over 7% from just below 7% in December. Interesting that back in October, when we went from that low in mortgage rates and shot way up over 7%, we saw new home sales come down sharply. We did not see that in December. There's been this talk of a new normal in the market. We also are seeing inventory supply come down from 8.9 month supply to 8.5 month supply and prices are still holding. $427,000 was the median price of a newly built home sold in December. That was up 2% year over year. So what's going on? Well, the builders are buying down mortgage rates. They continue to use incentives even though their sentiment has gone up very little, they are still concerned about what's going on for their costs. That was why we got that downgrade that you all just talked about on DR Horton, which was from Bank of America saying housing demand has moderated with higher rates and input costs are rising and builders have said they're concerned about tariffs and how they will impact their material costs going forward. But again, there appears to still be more demand in the market. We know the existing home side is still lean. It's an expensive market, but people are buying. We saw it in the Northeast and the West were the strongest areas. So a nice surprise for the builders, even though they seem to be pulling back a little bit on their sentiment and the market is kind of thinking a little less of them with that DR Horton downgrade. Carl.