| It was ugly for the stock market last week. On Monday, after it became public that a Chinese start-up named DeepSeek created a new, high-performing artificial intelligence model - at a fraction of the cost that U.S. firms have spent - the S&P 500 dropped 1.8% and the tech-heavy Nasdaq fell a whopping 3.5%. As you would expect, semiconductor stocks fared the worst - Broadcom (Nasdaq: AVGO) fell almost 15% on Monday alone and Nvidia (Nasdaq: NVDA) plummeted 17%... in a day! And tech stocks, which have powered the market rally for two years, dragged the rest of the market down with them. So, did that mark the end of this bull market that started back in October of 2022, and pushed the S&P 500 up 67% in a little more than two years? I doubt it. First and foremost, investors need to remind themselves that market pullbacks and corrections are completely normal within bull markets. This bull market is more than two years old and produced 20%-plus performances in both 2023 and 2024. Yet we also had significant drawdowns in both of those years. In fact, significant intra-year corrections are the norm, not the exception, in stock market history. And last week's pullback was modest in comparison to those of the last few years. Look on the Bright Side I would also argue that there are a few silver linings to last week's market drop. First, it challenged assumptions that investors have been relying on a bit too heavily over the past two years. What are those assumptions? - That the U.S., which up until now has been the leader in artificial intelligence - will easily remain dominant in the emerging industry.
- That throwing money and raw power at AI data centers and technologies is the only way to advance the revolutionary technology, rather than emphasizing innovation.
- That the U.S., via export controls on AI chips made by Nvidia and other firms - can block China from advancing its own AI technology.
All of those beliefs are false. And in retrospect, holding them too dearly and too long was a disaster waiting to happen. This pullback disabused many investors, CEOs, and engineers from these beliefs and will hopefully cause them to think more critically - and work harder and smarter to keep the U.S. in the lead in this ongoing and critical AI space race. A Broader Rally Second, the two-year rally was far too narrow. It was led by a handful of mega-tech firms - primarily the well-known Magnificent Seven. In recent weeks, however, the rally has begun to broaden out. You can see this in the one-month performance of the S&P 400 midcap index, up 4.2%, and the S&P 600 small cap index, up 3.3%. Both were outperforming the S&P 500 large cap index even before last Monday's market rout, which hit large cap stocks the hardest. That broadening is a very good thing. And the new perspective on large, AI-related stocks may accelerate it. Plus, while the prospect of cheaper AI tools may not be a positive for Nvidia, it certainly is a good thing for the many companies that want to implement AI into their businesses in an affordable way. Animal Spirits Finally, the sudden emergence of DeepSeek to challenge U.S. AI supremacy, coupled with significant policy uncertainty - both from the new Donald Trump administration and the Federal Reserve - strongly suggest that 2025 will be a volatile year for the stock market. Yet many policies that could generate significant wealth in the market look like they will be put in place this year, from tax cuts to deregulation to an energy boom. Those potential policies, while still a bit nebulous, are generating what is known as "animal spirits" among both investors and companies. Animal spirits, a term coined by economist John Maynard Keynes, are a kind of spontaneous optimism that drives people to take action when pure reason isn't impetus enough. That action could mean investing, expanding a business, consuming, innovating, etc. - all in the belief that the future holds enormous potential. I'm seeing that optimism now from investors and CEOs. You might be too. If you believe - like I do - that smart policies and animal spirits will continue to drive the market higher this year, pay attention to this... There's massive profit potential for savvy investors who know where to look. You can see Bill O'Reilly's interview with Alexander Green here. It's a special event where Alex reveals Trump's blueprint for America's economic transformation. Invest wisely, Matt | 
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