Weekend stock market thoughts - Trump tariffs, Deepseek update, and Microsoft

Is it time to be bearish?

Character change. That was the theme of January. After spending November running up after the Trump victory, and then December was all about squeezing all of the last shorts of the market with Tesla and quantum leading, January, really post 1/6 when the fiscal stimulus abated, was all about starting to get valuations down to more appropriate levels. It was the first monthly close below the VWAP of the prior month in over a year. Aka welcome to a world of instability and possibly a bear market.

As I talked about three weeks ago, we got our rally through Trump as POTUS as Yellen injected whatever TGA money she had left into the system and now we’re running on fumes. There’s a reason so few stocks have gone up through earnings so far. Without new money to continue to push the multiples higher, if growth slows down the stock gets sold. Something that wasn’t true for the last two years thanks to the IRA bill.

I will keep slamming the desk on this point in an attempt to save you all money, the BTFD impulse is dead. That is, unless until one of two things happen, possibly both. Either we get a debt ceiling uncap and Trump signs via Bassenet that we’re going to flood the zone again or we get a massive washout, mostly in the mega cap stocks if we’re being honest. A washout and not (and this part is important) not not not not instant rebound.

We can get the rebound with more TGA injections, but I don’t think this admin is keen on saving stocks. In fact I think the opposite is true. I think this admin is trying to kill the wealth affect that tech stocks only going up creates. I say tech stocks, because most of the rest of the market excluding a few names trade at sub market multiples. So multiple compressions cannot hurt them that much because there is a floor if earnings stay at similar levels.

This admin would love if all tech stocks blew up, the rest of the market rallied and then we just flatline for 18 months while Apple goes from 240 to 140, Nvidia goes down 50%, MSFT/META/AMZN/GOOG all fall 25 - 35% and then they stay down for a little bit. The reason the last part is important is 2022 taught a lot of people bad lessons. It taught them if you just keep buying the dip you will be fine. That might be true, but it normally takes longer than a LEAP contract to fully recover.

I keep harping on the megacaps because while they might screen as cheap relative to the market they’re all the most expensive they’ve been against themselves and priced nearly to perfection. Even META and GOOG are about 50% higher than (their own) historic multiples. Not exactly a bargain if anything goes wrong.

What did work in January and likely will continue working is a value led portfolio. The top 25 S&P YTD are filled with forgotten names like CVS, Humana, Discover, 3M company, Starbucks, Mosaic, Corteva, and Walgreens (more on them later). This isn’t exactly a who’s who of sexy trend following momentum names. As I wrote about in my 100 thoughts piece, Momentum normally takes a long break after an 18 month run. Long the mag7/growth/tech is just long the momo trade that started in 2023. That trade is over….at least for now.

This is not a market where you just buy tech leaps and chill. In fact, that is likely to blow up even worse when it does blow. Right now every tech investor and their mother is crowding into META because they were the only good result out of the Mag names that reported this last week. They’re up almost 20% YTD. Can they push higher? 100%. Hot money is normally buy at any price money. But if I’m interested in owning Meta long term that hot money will eventually sell- often at a price lower than what they bought in at- that would provide you a good entry. No, outside Reddit and a few other names I started buying this week that I talk about below the fold, I don’t really see anything of interest in the tech space and would much rather be anywhere else.

Before we start talking about this week one last thing about surviving the instability that this market is going to create. If your normal full size position is 10k, start by buying 2 - 3k on day one, wait a few more days, then add another 1 - 2k. Leg into the position over a number of days or weeks. Keep your position sizes small. Even if you think its a grand slam. Survival is the name of the game. If you can dodge the pullbacks, as everyone who followed my hedge I laid out three weeks ago before Trump got elected did on Monday, your returns will crush even if you do slightly under market preform the remaining part of the week. Being flat when the market is down 1, 2, 3% is a huge win over the long term. That’s why, small positions and be light on your feet.

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This week we got three pieces of news worth talking about. Deep Seek, Microsoft’s forward cloud guidance, and Trump and the Fed. I think if I lie and say these are all bullish data points more people will subscribe, but I’m not going to sugarcoat it. Again, survival is the goal. None of these points were good for the indexes this week.

First, what I wrote about Deep Seek mostly played out. The power source companies and the builders rebounded somewhat into the weekend, selling off with the market on Friday, but mostly doing okay given how bad Monday was. Meanwhile there was Nvidia. Nvidia bulls would like you to believe that the 6mm number that Deepseek said it cost them in manhours is CCP propaganda, and my response to that is in the linked piece. If you don’t want to read it, here’s a funny meme a friend of mine sent me which relays the same point:

Nvidia had its first close below the 200dma this week since it started its uptrend. Much like with anything else, can it go higher? Yes, but what Deepseek proves is that the future of compute isn’t only in Nvidia’s hands. Not a great look for a stock that was pricing in all that marketshare.

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Next, we had Fed meeting on Wednesday, where the FOMC signaled that no new additional rate cuts are on the table right now. The meeting was mostly a nothingburger, as it should be, but Trump used that opportunity (as he should) to continue blaming them for keeping inflation high. It was the IRA bill Donald! Not the Fed.

Not that the Fed does deserve some of the blame. They also deserve to be shoved in a locker weekly just because they act all high and mighty and above all things political, while also totally not being above anything political. Saying that Trump notably didn’t call for Jpow to be fired. No he’s going to get his pound of flesh on Jpow soon, but what he did do is change the conversation. Since the Fed signaled they were going to start raising rates in November 2021, after every FOMC meeting all Fed officials come out and IMMIDATELY start talking down rates. As if their life depended on getting the 10y and 30y to yield the least number they possibly could. By publish this tweet/truth he’s changing the conversation. The naturally dovish Fed officials cannot come out and talk about how they’re going to 16 cuts this year, and go negative on STIRS next year anymore. The moment they do they’re going to have to explain to an interviewer who’s interested in making headlines, how cutting helps fight inflation (it doesn’t). Follow up, if it doesn’t, why are you thinking about cutting given inflation isn’t going down anymore (ummmm no comment).

Now, we’re going to get less Fed speakers, and those who do speak having a slightly more hawkish tilt.

Add this to the fact the Trump admin has made sure to announce tariffs during market hours.

Add the fact that Trump hinted that ‘stocks go down’ when he did his interview with Jim Cremer back in December.

Add in how he hasn’t tweeted anything positive about the stock market since he got in.

And we’re left with an Admin that continues to act like it wants the market to go down. It wants to kill the wealth effect. Imagine what the admin would like bitcoin to trade at. I’m guessing the btc bulls won’t like that number.

My sense is in the Trump Admin’s perfect world, the average stock is higher but the megacaps have all come down. Leading to a market that is down 5 - 8% on the year. Next year would be a minor recovery year, but tech doesn’t move up fast enough to fully make up the ground lost this year. Then in 2027 and 2028 we explode higher built on a much stronger, more broad foundation. Obviously this is just pretend, but I don’t think I’m far off of what the admin would like the market to look like. They would like a lot of the punters to get washed out. The USD and the market have had a semi strong correlation, as they become the only game in town. By breaking the market, not only do you destroy the wealth effect which would kill some of the consumer based inflation, but you also weaken the dollar, helping spur on domestic manufacturing. Add in a tougher anti-illegal stance and you have the recipe for a helping the lower income population feel safer and make more money per hour, and close some of the wealth gap.

Will he be successful. I sincerely doubt it. But he’s sketching out a better more thoughtful plan about how to fix the ills of the USA than any POTUS since Reagan.

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Honestly, the Trump admin can only help with multiple expansion and contraction, and even then only in the short run. The market is perfectly happy to create a bubble or crash on its own. No for the market to go down and possibly stay down there needs to be real economic risks on the horizon. Not just stuff like Tariffs and Deep Seek either, both of which can help create potential new winners for every loser. No, what it needs is news about economic forecasts and bad read throughs.