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Just hours before Donald Trump was inaugurated as US president for a second term, Goldman Sachs held its annual investment summit in London, where the focus on the dollar emerged as a notable trend among investors.
While the specifics of the new administration’s economic policy still seem unclear, many investors, particularly in hedge funds, have aligned their expectations with the idea of a strengthening dollar, driven by factors like American exceptionalism and persistent inflation.
According to one senior trader at Goldman Sachs, this notion is seen as “the most obvious trade in the world,” especially regarding its relationship with the Chinese renminbi.
During the inauguration, Trump reiterated his focus on tariffs, a cornerstone of his previous campaign that helped him secure the presidency. However, he directed his attention towards Mexico and Canada instead of China, complicating the anticipated trade strategy that had positioned the dollar favorably.
This shift led to a notable increase in the Chinese currency, which impacted the dollar’s value against other currencies like the euro, pound, and yen—an issue for those expecting dollar strength.
In addition to currency concerns, other investment strategies tied to Trump’s presidency have faced setbacks. The prevailing belief prior to his reinauguration was that his policies on deregulation and taxes would benefit US stocks significantly, particularly in light of the anticipated boom from artificial intelligence, which is largely driven by US firms. For some investors, committing to US stocks was not just a financial move but also a strategic one amid geopolitical considerations.
However, the recent emergence of DeepSeek, a Chinese competitor in the AI space, has caught investors off guard, leading to a rapid decline in US tech stocks. The market capitalization of Nvidia alone plummeted by over $600 billion in a single day, a record drop for any company. With seven AI-focused US firms comprising about one-third of the S&P 500, any weakening in their competitive advantage could significantly alter market dynamics.
According to analysts, if Nvidia and its leading customers—Microsoft, Google, Amazon, and Meta—were excluded, the S&P 500 would fall roughly 12% lower than its current standing. Given the strength of US markets, this situation has raised concerns about vulnerability to external pressures, particularly from rising markets abroad.
Major stock indices in Germany and the UK have reached new heights since Trump’s return to office, indicating a degree of resilience outside the US. Nonetheless, disturbances in US tech companies could have far-reaching effects on global markets.
The dollar’s decline and instability in US stocks pose challenges for those expecting a straightforward investment climate, underscoring the unpredictable nature of managing investments in the current political landscape. Investors need to remain cautious and reassess their “obvious” choices as they navigate this evolving scenario.
The narrative of US Big Tech dominance and a strong dollar had provided an appealing framework for this new era under Trump, capturing investor enthusiasm. The discourse around Trump’s swift actions elicited both admiration and skepticism, prompting a closer examination of how forthcoming developments may impact investment strategies.
photo credit: www.ft.com
