Summary
After a mostly calm January, the VIX Volatility (Fear) Index jumped three points on Monday as the S&P 500 dropped 89 points and the Nasdaq shed 600. Are we headed for a correction or a visit from the bear? Not necessarily. But risks remain. Indeed, in our 2025 Market Outlook, we noted that investor complacency was high and stock valuations were susceptible to a sell-off in the Technology sector. And that’s what happened Monday, on news that Chinese AI technology was becoming more sophisticated, and that large language models (LLMs) from companies such as DeepSeek were more powerful and less expensive than established LLMs from Meta, OpenAI, and others. It is important to keep in mind, though, that the AI market is large and growing, and new entrants are expected to continue to disrupt this emerging industry. And while pricing is important, companies in the AI space prioritize relationships, continuity, security, and reliability; and adding new vendors always entails risk that these requirements will not be met. Meantime, U.S. government policy is highly likely to prevent wide dissemination of Chinese LLMs in implementations in the U.S., given risks of “back doors” to Chinese military and intelligence. Non-U.S. nations are largely following similar policies, which will inhibit acceptance of Chinese AI LLMs worldwide. Back to the market, the current VIX is around 18.0, below the 15-year average of 20.5, and signals investors aren’t overl
