What should investors do in Trump trade wars?

– 2025 started out with a big bang in the markets. The incoming US President Donald Trump took office on January 20^th, 2025. The same afternoon he fired off a broad set of executive orders. However, nothing was more interesting than the new meme coin Trump launched just days before he came into office, called $TRUMP. Given Trump’s crypto-friendly approach markets flocked to the new coin. $TRUMP, a coin which has no other backing than Trump’s own “name” soared to over $10 billion in value while marking Donald Trump as the first “Crypto President.”

–Markets got a jolt from a new Artificial Intelligence-powered chatbot created by a Chinese company DeepSeek, which was released to the public on January 20^th. This took the markets by surprise sending a number of large tech stocks like NVIDIA alongside some major stock indices such Nasdaq and S&P 500 tumbling. But what does a small Chinese chatbot firm have anything to do with the US tech market? DeepSeek, an Artificial Intelligence powered chatbot firm, was launched in 2023 in Hangzhou, a city in Southern China. The first version of DeepSeek was released later that year.

–US equities were fueled by Trump’s economic plans geared towards making US economy more competitive, strengthening the dollar and reducing taxes across the board. The prospective FED rate cuts continued to support equities as well. As of January 27^th, the US equity index S&P 500 was up by a +2.2% on the month. Unaffected by the tumbling US tech stocks, the European stock index Euro Stoxx 50 did even better by delivering +6% over the same period.

–Trump’s pro-crypto stance and the easing global liquidity conditions had Bitcoin shoot up past the monumental $100,000 mark reaching $106,788 before retreating back to over $101,000 by January 27^th. Over the same period Bitcoin was up by +8.1% on the month, while Ethereum retreated by -5.6% on the month.

– Gold remained buoyed throughout January due to the uncertainty surrounding Trump’s potentially inflationary policies. As of January 27^th, the first month futures contract for gold was up by +4.7% on the month building on its strong performance in 2024. In January crude oil prices were driven by factors similar to that of gold, including the ambiguity surrounding global trade and commodity prices which may be impacted by Trump’s new trade policies. As a result, crude oil prices went up during the month. As of January 27^th, the first month futures contract for US crude oil WTI was up by +2%.

–The positive outlook in global equities helped the Turkish stock market as well. As of January 27^tH, Borsa Istanbul Index BIST100 was up by +1.7% in local currency terms (+0.6% in US dollar basis) over the month. The performance of BIST100 in US dollar terms underperforming its return in local currency is due to the appreciation in the greenback against Turkish Lira by +1.1% since the end of 2024.

–Sticky inflation which may trigger a slowdown or even a pause in future FED rate cuts may have some serious repercussions for the financial markets. If this kind of an environment were to overlap with potentially inflationary Trump policies, markets may be in for a surprise regarding the macroeconomic environment. The price of gold which has been on a continuous climb triggered predominantly by these risks should be considered an important gauge by investors.

–While our longer-term macro view still calls for continued upside to these instruments, with asset prices even more elevated than before, the risk for a market correction seems to be growing. Investors could consider reducing some risk in their portfolios by moving some of their equity type assets to cash and cash like instruments such as gold while allowing the markets to cool off.

2025 started out with a big bang in the markets. The incoming US President Donald Trump took office on January 20^th, 2025. The same afternoon, similar to his predecessors, he fired off a broad set of executive orders including more global decisions such as withdrawing from World Health Organization and declaring certain cartels and foreign entities as terrorist organizations as well as more unique endeavors such as establishing the new Department of Government Efficiency and ending the “wasteful” government Diversity Equity & Inclusion (DEI) programs. However, nothing was more interesting than the new meme coin Trump launched on January 17, just days before he came into office, called $TRUMP. While this came as a bit of surprise to the markets, given the voter support behind Trump as well as his crypto-friendly approach markets flocked to the new coin. As a result, $TRUMP, a coin which has no other backing than Trump’s own “name” soared to over $10 billion in value at the end of his first day in office while marking Donald Trump as the first “Crypto President.”

MARKETS GOT A JOLT BY A CHINESE CHATBOT CALLED DEEPSEEK

While the first week of Trump’s Presidency was unfolding, markets got a jolt from a new Artificial Intelligence-powered chatbot created by a Chinese company DeepSeek, which was released to the public on January 20^th. This took the markets by surprise sending a number of large tech stocks like NVIDIA alongside some major stock indices such Nasdaq and S&P 500 tumbling. But what does a small Chinese chatbot firm have anything to do with the US tech market? To understand, we should look at how DeepSeek came to be. DeepSeek, an Artificial Intelligence powered chatbot firm, was launched in 2023 in Hangzhou, a city in Southern China. The first version of DeepSeek was released later that year. At the beginning of 2025, the more advanced R1 version of DeepSeek was introduced to the US market through the Apple Store and immediately topped the list of most downloaded applications. According to the firm, it cost a mere $6 million to build their chatbot, much less than the billions spent by AI companies in the US. This has naturally called into question the market valuations of some large US tech firms such as NVIDIA which produce the chips that power the AI technology behind the more well-known chatbots like ChatGPT. This means the new US President Trump’s concern related to competition from China may be well founded although in an open market economy it is not clear how he can protect the US markets through any tariffs or bans.

While whether the market action in tech stocks will continue remains to be seen, in January global markets continued to digest and remained buoyed by Trump’s inauguration.

US EQUITIES CONTINUED TO CLIMB IN JANUARY

Despite the drop towards the end of the month due to DeepSeek, US equities were fueled by Trump’s economic plans geared towards making US economy more competitive, strengthening the dollar and reducing taxes across the board. The prospective FED rate cuts continued to support equities as well. As of January 27^th, the US equity index S&P 500 was up by a +2.2% on the month. Unaffected by the tumbling US tech stocks, the European stock index Euro Stoxx 50 did even better by delivering +6% over the same period. Global emerging markets equity index MSCI EM was also up in January delivering +0.8%. In light of all the positive returns, the global equity markets indicator MSCI All Country World Index (ACWI) was also up by +2.7% over the same period.

BOND YIELDS EASED ONCE AGAIN

Since end of April 2024 bond prices have been on the rise (meaning yields have been dropping) with the exception of October and December when bond prices dropped (meaning their yields increased). The long-term bonds yields continued their decline in January. The key nuance here however is the fact that this was despite an explicit increase in expected inflation. This was partially due to sticky US CPI data as well as the potential inflationary impact of expected increases in tariffs that may be implemented by the Trump administration.

As a quick reminder, while shorter durations are driven by the central bank interest rate decisions, longer term maturities rely more on expected inflation and real rates (in a simplified form nominal rate = expected inflation + real rate).

The graph below illustrates how implied inflation changed over the last year, particularly how it increased from end of December 2024 (red line in the graph below) vs. end of January (blue line).

Source: Bloomberg

In line with this slight drop in long-term bond yields, as of January 27^th, Bloomberg Global Aggregate Bond Index, the Global Corporate Bond Index and the High Yield Bond Index all had positive performance respectively delivering +0.2%, +0.5% and +1.04%.

BITCOIN HAD ANOTHER AMAZING MONTH

Trump’s pro-crypto stance and the easing global liquidity conditions had Bitcoin shoot up past the monumental $100,000 mark reaching $106,788 before retreating back to over $101,000 by January 27^th. Over the same period Bitcoin was up by +8.1% on the month, while Ethereum retreated by -5.6% on the month.

GOLD SPIKED IN JANUARY

Gold remained buoyed throughout January due to the uncertainty surrounding Trump’s potentially inflationary policies. As of January 27^th, the first month futures contract for gold was up by +4.7% on the month building on its strong performance in 2024.

CRUDE OIL HAD A POSITIVE MONTH

In January crude oil prices were driven by factors similar to that of gold, including the ambiguity surrounding global trade and commodity prices which may be impacted by Trump’s new trade policies. As a result, crude oil prices went up during the month. As of January 27^th, the first month futures contract for US crude oil WTI was up by +2%.

TURKISH STOCKS WERE UP IN JANUARY

The positive outlook in global equities helped the Turkish stock market as well. As of January 27^tH, Borsa Istanbul Index BIST100 was up by +1.7% in local currency terms (+0.6% in US dollar basis) over the month. The performance of BIST100 in US dollar terms underperforming its return in local currency is due to the appreciation in the greenback against Turkish Lira by +1.1% since the end of 2024.

MARKET VOLATILITY COULD CONTINUE IN THE FIRST HALF OF THE YEAR

We previously discussed the repercussions of sticky inflation which may trigger a slowdown or even a pause in future FED rate cuts. If this kind of an environment were to overlap with potentially inflationary Trump policies, some of which we are already starting to see, markets may be in for a surprise regarding the macroeconomic environment. The price of gold which has been on a continuous climb triggered predominantly by these risks should be considered an important gauge by investors. Given some of the significant market moves over the last couple months, we do expect the market volatility to persist and perhaps increase going into the second quarter of the year.

As noted, before, this environment would allow for credit investments, such as corporate and high yield bonds, which are priced off government bonds, to appreciate particularly for longer maturity instruments. We also had suggested opting for investments suitable for periods of market uncertainty such as gold. These instruments have indeed appreciated over the recent period, and we expect this trend to continue as long as the above noted risks continue to hover over the markets. We also suggest caution regarding equity markets. While our longer-term macro view still calls for continued upside to these instruments, with asset prices even more elevated than before, the risk for a market correction seems to be growing. Investors could consider reducing some risk in their portfolios by moving some of their equity type assets to cash and cash like instruments such as gold while allowing the markets to cool off.

 THERE IS RISK FOR SERIOUS PORTFOLIO LOSSES

Investors should remember that while markets normally go up in an escalator, they tend to come down in an elevator. After all, losses and gains mathematically are not symmetrical. Given that the only way to make up for 50% loss is by delivering a 100% return, let us not forget that it is better to take risk off the table by turning investments to cash when the stakes are high as opposed to maintaining investments just to deliver returns.

Ela KARAHASANOGLU, MBA, CFA, CAIA

International Investments Director

karahasanoglu@turcomoney.com

ela.karahasanoglu@ekrportfolioadvisory.com

https://www.linkedin.com/in/elakarahasanoglu/