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Is the ‘Trump Put’ a Golden Ace for Markets Amid Constitutional Chaos?

Since Trump first took office there has been the theory of the ‘Trump put’, a belief that no matter what happens, Trump cares too much about the stock market to maintain policies that result in significant market falls. This was largely true in his first term and would provide a level of comfort and protection to investors.

Unclear government policy is very unhelpful for US businesses and is the primary reason we’re seeing significant volatility in markets, particularly for US equities. Someone may argue Trump is using tariffs as a bargaining tool, a view I don’t disagree with, but the key point is that he’s now shown that he’s prepared to impose tariffs seemingly anywhere with little to no prior notice, not just use them in isolation as a bargaining tool. Suppose you’re a manager at a US business budgeting for the future. Tariffs mean that the cost of the goods you import have risen by 25%. You’re going to be incredibly conservative with your future spending compared pre-tariff plans including expenditure on employment, investment in equipment, research and development etc, which doesn’t sound like a plan for growth to me. In addition to this, Donald has poured a little more gas on the fire by delaying but not removing, some but not all of the tariffs – uncertainty on top of uncertainty! Trumpcertainty?

Tariff Tiffs and Economic Shifts

Brash and inflammatory speeches from Tariff Man have meant that China has spent a period of time under the radar and out of the headlines. Despite this, the investment opportunity in China appears to be evolving even if the world’s second largest economy is slowing down.

Xi Jinping has been meeting with the country’s most important business leaders. Most notable is that Jack Ma, founder of Alibaba, has been prominent in Chinese state media’s reporting. A monumental change given he went ‘missing’ in 2020 following a speech in which he publicly criticised the financial sector. The Chinese securities regulator is also rumoured to be exploring targeted deregulation to make China a more appealing nation in which to invest, as well as improving the appeal of listing in China. Only last month CATL, the world largest electric vehicle battery manufacturer has filed to list in Hong Kong in what would be the region’s largest stock offering in 4 years.

The rather unimaginatively named “Two Sessions” (week-long annual formal government meetings), are taking place in China this week. The topics for discussion are unknown but it’s very interesting that the “Made In China 2025” project along with the government’s rolling 5 year economic plan both come to their conclusion this year. We have no crystal ball, but supportive policy is very much on the table. For this reason, we have taken our allocation to China from a marginal underweight, to an overweight.

Of course, we need to acknowledge that China isn’t without its own issues. Political risk has long caused headaches for investors in China, with the government being so dynamic and arguably inexperienced, that at times it can be unpredictable.

Back to the Deutsche Discotheque

To put it mildly, there’s not been too many positive things to say about Europe recently as war, inflation and political upheaval have weighed on investor sentiment. To quote a US hedge fund manager by the name Dan Loeb, “Markets are like a bad party. When things get too euphoric, it’s time to go home. When everyone is throwing up in the bushes, it’s time to come back.” In September last year we rejoined the party, moving to an overweight Europe allocation in the Overseas Equity fund and just this week, taking a new position in the Fixed Income fund via a European Government Bond ETF.

Eurozone GDP growth has been non-existent for some time, Italy and Germany’s industrial output has been falling and the French are still arguing amongst themselves as to who’s even in charge. Clearly each constituent nation of Europe has their problems. Europe’s silver lining is that they are one of the first developed regions that can say with a degree of confidence that they have inflation largely under control now. What this means is that the European Central Bank has a greater opportunity to cut interest rates than other regions and should we see further ‘bad’ economic news, so long as inflation remains under control, this would be a positive for asset prices as it would further fuel the expectation for interest rate cuts to support growth. For fixed income assets, falling interest rates means falling bond yields, which in turn causes capital values to rise. As a direct consequence of these views, we’ve recently taken a position in a European Government Bond ETF with substantial duration, meaning that the ETF will have a high degree of sensitivity to changes in interest rates. Falling interest rates are also a positive for equities as it means the cost of borrowing falls and lower discount rates are used for valuing future cash flows – a benefit to many alternative and property assets too.

Donald Trump has returned to office and has already put pen to paper on over 20 executive orders, more than any previous president signed on their inauguration day. From the protectionist policies we expected to see such as “Protecting The American People Against Invasion” to the slightly bizarre “Putting People Over Fish”. Trump is making his mark but so far, the imposition of widespread tariffs seems to have been avoided – it seems someone has tapped him on the shoulder and reminded him that he can’t have lower inflation and widespread tariffs.

It’s clear Trump sees China as the nation’s main international trade competitor. Elon Musk becoming his new best friend and a plethora of tech CEOs lining the front row of his inauguration appears to be a clear sign that he believes technology companies have a key part to play in future growth, a view reinforced by the subsequent signing of an executive order titled “Removing Barriers To American Leadership In Artificial Intelligence”. Unfortunately for him, as at the time of writing, at the top of the Apple App Store charts is a Chinese AI app called DeepSeek which has caused Nvidia to DeepSink, falling in value by $589bn, the largest ever single day fall. The reason not necessarily being that the technology is superior in performance, all AI software remains far from polished, but the reported massive difference in development cost, power requirements and number of chips needed to function, brings into question the future level of demand for Nvidia chips.