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Hours ahead of the reinauguration of Donald Trump as US president last week, Goldman Sachs hosted its annual investment summit in its London office, and one big so-called Trump trade kept on cropping up: the dollar.
The new US president’s economic policy platform remains tough to parse or predict in any kind of detail. But investors, especially speculative hedge funds, have been pretty settled on the idea that Trump means a strong buck — the result of American exceptionalism, stubborn inflation, or both.
For many clients it is, as one of the bank’s most senior traders outlined to the assembled fund managers, “the most obvious trade in the world”, especially in relation to the Chinese renminbi.
Later that same day, Trump made his way back to the White House. On his way, at the inauguration ceremony, he returned to his precious topic of tariffs — one of the key policies that snagged him his historic election victory. This time, however, it came with one big problem for the “obvious” trade: Trump directed his toughest intentions at Mexico and Canada, not China, which he has previously suggested was the main target.
Cue a sizeable jump in the Chinese currency that has fuelled a drag on the dollar across the board. The euro, sterling and yen have all picked up from recent lows — an alarming development for dollar bulls.
This is far from the only supposedly slam-dunk strategy for the president’s second stint in the White House that has run into early trouble.
The message in the run-up to the reinauguration of Donald Trump has been that his zeal for deregulation, low taxes and American goods for American consumers all add up to a strong positive case for buying and holding US stocks in preference to the rest of the world. The icing on the cake is the artificial intelligence revolution, forged in the US and dominated by US-listed companies. Some investors see it as not just a commercial imperative but a strategic geopolitical imperative to stick as closely as possible to this theme.
Then came the latest market shock: the emergence of DeepSeek, a Chinese challenge to US hubris in artificial intelligence. This took a little while to really get on to investors’ radar. But at the start of this week, it did so with a bang, sending US tech stocks sliding fast. The market value of Nvidia alone sank by more than $600bn — an unprecedented daily drop for a single company. Remember: just seven AI-adjacent US stocks account for fully one-third of the entire S&P 500 benchmark index of US equities. If it turns out that the moat around them, and particularly around chipmaker Nvidia, is not as wide or as deep as investors had hoped, this whole fairytale starts to unravel.
French bank Société Générale points out that without Nvidia and its top four customers — Microsoft, Google, Amazon and Meta — the entire US benchmark index would be some 12 per cent below where it is today. With “American exceptionalism in full force”, as Manish Kabra, head of US equity strategy at the bank put it, it is little wonder that broad US markets are feeling the pain. Tilting towards an equal-weighted S&P 500, rather than the standard version favouring monster-size tech stocks, makes sense here, he added.
Ignoring markets outside the US is also unwise. The main stocks indices in Germany and the UK have struck new record highs since Trump took office. There is life in the rest of the world after all. But any challenge to US Big Tech has the power to be seriously destabilising for all markets.
A stumbling dollar and unusually wobbly US stocks are an ugly blow for anyone who expected this to be an easy ride, and a painful reminder that when it comes to managing money in the era of Trump 2.0, no one really knows anything. Whether you are a hedge fund manager or a have-a-go amateur investor, in this environment, you stick to your convictions at your peril.
US Big Tech, a powerful dollar and US dominance over puny overseas stock markets were all a nice, neat, satisfying story to accompany the new Trump era, and investors of all stripes embraced it with great vigour. “Other than the almighty, who has achieved more in seven days than [president] Trump?” fawned investor Bill Ackman in an X post over the weekend.
Such cringe-inducing hyperbole is tough to stomach, but it is a timely prompt to consider what the chosen one will do in the next seven days, and the seven days after that, and whether your portfolio of “obvious” Trump trades can handle the pain.
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