Let's start our Monday with a reader's poll: What's the scariest movie you've ever seen? For a certain subset of readers, I'd be willing to bet the answer depends on the environment you grew up in. For example, if you spent the summers of your youth swimming in the Atlantic Ocean, Jaws might be your answer. Or, if the COVID-19 pandemic represents the seminal event of your life, 28 Days or the mini-series based on Stephen King's The Stand might be legit responses, because they brought the realities of a global pandemic to the screen in very disturbing and realistic detail, years before the drama played partially out in real life. Or, for those who grew up in the shadow of the bomb, War Games or Dr. Strangelove might be candidates.

But those movies (or, in the case of The Stand, the book, because let's be honest, the theatrical adaptation was terrible...) are only frightening if you take the time to stop and think about them. And even then, these stories only terrify us because they stoke a deeper, darker set of pre-existing fears that we brought with us to the theater. So no, I can't imagine The Stand or War Games made too many lists.

Instead, movies like Texas Chainsaw Massacre, Scream, or the Aliens franchise probably scored high — not because they remind us of a terrifying reality (they are, after all, all pretty unrealistic when you sit down and think about them with a cool head), but because they expertly employ an old trope used by horror movies since the dawn of time: The jump-scare.

What makes a good jump-scare so frightening isn't necessarily that it's completely unexpected (if the ticket in your pocket has the words "Chainsaw" and "Massacre" printed on it, you can't say you weren't warned), but instead because you don't know exactly when it will come or how it will play out. So it's not knowing the when or the how that makes the jump-scare so effective as a theatrical device.

And therein lies the connection between horror movies and today’s market environment: It turns out that markets, too, are just as freaked out as the movie-going public by a good jump-scare. In fact, there isn’t much that markets hate more than not knowing the ‘when’ or the ‘how’ of an event that investors legitimately believe could influence the future.

In the last eight days, markets have had to contend with two separate and (mostly) unrelated jump-scares. The first, as we detailed in last week’s Perspective, was the sudden popularity of DeepSeek, a Chinese AI engine that appears to be a viable competitor to the West’s best AI models but was developed at a fraction of the cost, thereby calling into question both the validity of the ongoing AI capex gold-rush and the stretched valuations of some of its most notable pick-and-shovel makers.

Markets were right to be startled by DeepSeek and quickly spilled a whole bunch of their popcorn last Monday when faced with this sudden and unexpected jolt to the dominant plotline. But, just like moviegoers watching the latest Chuckie film, investors quickly swallowed most of that shock and moved on — by Friday, markets had mostly round-tripped from Monday’s losses in spite of a deep hit to a few of the U.S. market’s biggest big-caps.

Then over the weekend came second jump-scare in the form of sudden tariffs against China, Canada, and Mexico. President Trump’s new trade restrictions were telegraphed from the campaign trail and therefore about as obvious and predictable as the guy in the hockey mask suddenly whipping out a machete and chasing college co-eds around the barnyard, which makes it a lot harder to argue that we didn’t know they were coming. But there’s still plenty we don’t know about the ‘when’ of Trump’s new tariffs, such as when they will become effective or how long they will last (as I write this, for example, Mexico seems to have been granted a temporary stay of execution, which has afforded markets a measure of relief, however temporary it might prove to be).

But it’s really all the uncertainty as to how this tariff jump-scare will eventually play out that has kept markets on edge, nervously munching what’s left of their popcorn. For example, will our trading partners retaliate in kind? And how much inflation will the tariffs ignite? If significant, will higher prices finally cause the U.S. consumer — who continues to underwrite the U.S. economy’s growth — to buckle? On the other hand, if the inflationary impulse is weak, does that mean that pass-through of higher costs of globally-sourced inputs from US producers to their customers is less than perfect, which could damage profit margins — and therefore corporate earnings — in the process?  And then there’s the question of where the guy in the hockey mask disappeared to — will he jump out from around the next corner and impose a similar set of tariffs against the EU? It’s a cliff-hanger that has investors in Europe biting their nails — as I write this, European stocks are down sharply and are underperforming a very weak open for U.S. markets.

Let’s be clear: Nobody really knows the answer to any of these questions. And even if we had answers to the known unknowns above, tariffs are blunt instruments often employed by non-experts to bludgeon trade flows in a desired direction. Economies, by contrast, turn based on tiny nuances — many of which are surprising and develop in ways that are entirely unpredictable. So while it may be somewhat comforting that the mini trade war that erupted during the first Trump presidency wasn’t as scary as the trailer made it out to be, there’s simply no way to know how this movie ends, or even if the ending will be happy or sad. And uncertainty about what comes next is precisely what markets are reacting to this morning.

Okay, time to move on and talk about things where the outcome is a little better-known. Last week’s Federal Reserve decision was, to extend the movie-house metaphor, about as exciting as the 1987 box-office bomb Ishtar: The ending was known long before the movie was even half over, the cast was tired and stilted, and the most compelling thing about it was an edit to the script that turned out to be meaningless. What I’m referring to there is the removal of the phrase “making progress” in the portion of the Fed’s post-decision statement that talked about inflation.¹ That was originally seen as the most hawkish thing about Wednesday’s decision to pause the Fed’s rate-cutting campaign because it hinted at the idea that the Fed was becoming less convinced that inflation was moving in the right direction. But when he was questioned specifically about the omission, Fed Chair Jerome Powell played it off as an editorial thing: “We just wanted to make the sentence shorter.” So much for reading between the lines.

So the only thing we learned from last week’s Fed decision that we didn’t already know is that the Fed has its own version of the Strunk & White Style Guide and holds itself to a high editorial standard. But somewhat more interesting was the flurry of earnings reports from big-cap tech. Like the Fed decision, last week’s large-cap earnings went mostly as expected (although lower revenue guidance from Meta and a miss from Tesla initially generated some negative noise), and there was very little shared during post-earnings conference calls to suggest that DeepSeek’s bursting onto the scene has dented the AI story line at all. In fact, one of the larger surprises from last week’s earnings derby was the emergence of two previously less-known (or perhaps less-obvious) names to the list of AI all-stars: Boring old Big Blue (aka “IBM”), who’s consulting division is winning business from wannabe AI builders and deployers, and ASM Lithography, who builds the machines that build the chips that train AI (sort of the pick-and-shovel makers for the pick-and-shovel makers). Both guided future quarter results higher.

Meanwhile, though, trends weren’t quite as upbeat in the boring old traditional economy. Tractor maker Caterpillar and tractor-trailer operator CH Robinson both missed topline estimates during the current quarter, suggesting that the environment for commodities and raw materials — and the coast-to-coast movement of said commodities and raw materials — isn’t as robust as once thought (and UPS, who threw up its hands and said its willing to walk away from a huge chunk of unprofitable business from Amazon, its biggest customer, did little to help redirect that line of thinking).

All of which ties well to the remainder of last week’s economic data, starting with the Bureau of Economic Analysis’ first guess at fourth-quarter Gross Domestic Product (GDP). That number was a lower-than-expected 2.3% (which is striking when you consider the Atlanta Fed’s GDPNow — an often-quoted, highly credible and nearly real-time prediction of economic growth — had very recently pegged growth at 3.2%). What changed, apparently, was a big expansion in the December trade deficit — which detracts from GDP — and was thought by some to reflect a pulling-forward of import demand ahead of this week’s expected tariffs. (There’s a nuance for ‘ya... .)

Similarly, the Conference Board’s update on consumer confidence generally agreed with the University of Michigan’s earlier conclusion that consumers are becoming more worried about jobs, with a notable widening-out of the ratio between those who consider jobs “plentiful” and those who view them as “hard-to-get.² At the same time, Market News International’s Chicago Purchasing Managers Index (PMI) — already near cycle lows — failed to improve much,³ even as consumers continued to spend⁴ and other PMI-type data showed marginal signs of improvement (see, for example, the relatively upbeat Dallas Fed⁵ or the Chicago Fed’s CFNAI⁶).

So last week was kind of a mixed bag: The market seems to have taken one (or perhaps both) of its jump-scares mostly in stride, even if it’s still unclear where, when or how the next one might come. And the AI plot line seems mostly intact, even if the real economy — the one that builds stuff and moves it around the country — isn’t quite as certain. For now, then, as we watch the movie unfold in front of us, the only thing we can say with confidence is that the sequel — Trump 2 — looks like it might be at least as exciting as the original.

What to watch this week

It’s payrolls week again. While hiring remains flat and consumers admit to being worried, wholesale reads on the health of the U.S. labor market have yet to show a broad-based decline (including a better-than-expected weekly and continuing unemployment claims numbers last Thursday). We’ll get more evidence this week, beginning with job openings and quits rates from Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report and extending through Friday’s big burrito of labor market data, non-farm payrolls. As always, watch Thursday’s layoff tally from Challenger Gray and Christmas for any indication that layoffs are surging — it hasn’t happened yet, but if it does, the low-hire economy will suddenly matter a whole lot more.

We’ll also get final reads on January Purchasing Managers Indices — manufacturing on Monday and services on Wednesday. Couple those reports with December factory and durable goods orders on Tuesday, and the trends in the productive economy will come into better focus. Expect manufacturing and goods-producing sectors to improve marginally while services activity moves lower; but as before, it will be at least as important to watch the underlying data closely for any sign that inflation is picking back up.

As for corporate earnings, volume begins to pick up even as a few headline-grabbers straggle across the wire. We’ll get our first 200-plus day on Wednesday when nearly 220 companies are expected to release results, including China’s ecommerce giant AliBaba. BABA matters even more than usual to the market narrative because it provides a somewhat less-opaque view into the Chinese consumer (who, as Apple’s results last week showed, remains flat on his or her metaphorical back). BABA and other Chinese companies who, because they’ve chosen to list equities here, report results in the U.S. are also increasingly relevant as a lens into the geopolitical environment that isn’t quite as colored by official channels that originate in Beijing or Washington D.C.

Other headline-grabbers include at least two of the remaining Magnificents — Google/Alphabet on Tuesday and Amazon on Thursday. As with other Mag-7 stocks, pay close attention to what these companies are saying and doing in AI. So far, there’s little indication that last week’s DeepSeek debacle has changed the trajectory of the AI super-cycle by even a degree or two. Confirmation from these two super-scalers that all is still well could go most of the final mile toward putting last week’s DeepSeek jump scare behind us.

For a view into how Detroit is holding up now that the first round of tariffs have been announced, listen to Ford’s post-release conference call for any indications of how US automakers — who maintain massively global supply chains and assemble some of their vehicles in Canada and Mexico — plan to cope. That will become an increasingly significant component of all globally-exposed companies as earnings season continues to gain momentum in coming days and weeks.