The Money Wise guys are back in the studio and as always, the team kicks off this week’s episode by breaking down a volatile market week, with the Dow gaining 120 points (+0.3%) while the S&P 500 fell 61 points (-1%) and the NASDAQ dropped 327 points (-1.6%). Despite the week’s losses, all three indices remain positive year-to-date, with the Dow up 4.7%, the S&P 500 up 2.7%, and the NASDAQ up 1.6%. The guys discuss the increased volatility of 2025, which they expect to be higher than in 2024, and the impact of algorithm-driven trading on market swings. Monday’s sharp selloff in tech stocks was fueled by an unverified report from DeepSeek, a Chinese AI research lab, claiming that an open AI model could be built for just $6 million. This triggered a major downturn in the NASDAQ, as markets reacted to fears of AI advancements disrupting big tech profitability. However, further analysis revealed the report to be misleading, leading to a recovery the next day.

The conversation highlights the importance of active management in navigating knee-jerk market reactions, as well as the team’s strategic decision to reduce exposure to mega-cap tech stocks at the start of the year. While not anticipating a specific event like this, the guys recognize the risks of overconcentration in a few dominant names and positioned their portfolios accordingly. They also touch on Microsoft’s discovery of stolen AI data from China, raising further concerns about AI security and market manipulation. They emphasize the need for investors to stay disciplined, avoid emotional reactions, and focus on long-term strategies in a market increasingly influenced by algorithmic trading and unvetted news.

Algorithmic trading, also known as algo trading, refers to the use of computer programs and complex mathematical models to execute trades at high speeds based on predefined criteria. These algorithms analyze vast amounts of market data, news feeds, and technical indicators to make split-second decisions, often executing trades in fractions of a second. While algorithmic trading increases market efficiency and liquidity, it can also amplify volatility, as seen in cases where automated systems react to unverified news or sudden price movements. This can lead to exaggerated selloffs or rallies, as algorithms trigger a chain reaction of trades based on momentum rather than fundamental analysis. For investors, understanding the impact of algo trading is crucial, as it underscores the importance of active management, diversification, and maintaining a disciplined approach during rapid market fluctuations.

In the second hour, the Money Wise guys discuss Equity Index Annuities. You don’t want to miss the details! Tune in for the full discussion on your favorite podcast provider or at davidsoncap.com, where you can also learn more about the Money Wise guys or take advantage of a portfolio review and analysis with Davidson Capital Management.