Market whispers - Trump's tariff guns go off
Markets: Beachman's portfolio tactics based on his read of the markets
This is probably one of my most important posts of 2025…and I am not trying to be dramatic about it.
No, it is not about Chinese AI. I do not have an opinion about DeepSeek’s AI model. In fact, I am quite tired (yawn!) of all the opinion pieces…points-of-view…breaking-news tweets…extra-long threads…3-tech-bros 1.5 hour YT discussion videos…laborious vacillating on investment discussion boards etc. Everyone and their UberEats delivery person has an opinion on the matter. No one knows the entire truth…I reckon that most DeepSeek employees themselves do not know the facts.
In the Beachman community, we are focused on business results. We track who is making money in AI and we tend to invest in those companies. We carefully manage our risk via portfolio management guard rails. We take overweight positions when our conviction is high and we trim them when risks or valuations are elevated.
Since Q3 2024, we have been expecting an AI pullback in this quarter and now DeepSeek is the excuse being used to make it happen. This is why we went overweight in AI infrastructure 6 months ago and then trimmed our allocation by about 38% at recent highs. Now, we are making plans for where else to put money to work.
Now let’s move on to more important matters…
I have said that 2025 will be the year of some rather nasty market potholes and as investors we need to be ready for them. I started sharing my 2025 tactics on my substack.
In terms of immediate issues…there are two such potholes coming to punch markets in the face.
One of them took markets lower by -20% the last time it happened…
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Table of contents
Overall market conditions
Beachman’s portfolio stance
Important dates
Market signals
Bottomline
Overall market conditions
Trend: Bullish. Still in a narrow range and a possible double-top.
Risk level: Medium.
Investor sentiment: Neutral.
Beachman’s portfolio stance
Mostly long.
One short in place (See current trades at Beachman’s Salty Trades).
Deployed cash last week to buy specific dips.
Important dates
Feb 7th - Jan employment report.
Feb 12th - Jan CPI inflation report.
Feb 21st - Monthly options expiration. About $350B in volume. 2x bullish CALL options versus bearish PUT options.
For short term trade ideas, check out Beachman’s Salty Trades.
On the daily, you can find Beachman in three places…
Beachman’s Substack chat line here
Beachman’s Substack feed here
Beachman’s Threads feed here
Please check out the must-reads listed on the About page and the Roadmap page.
Market signals
Tariff wars
Stocks were cruising all week, but then declined late Friday after the White House confirmed the imposition of new trade tariffs: 25% for Canada and Mexico along with additional 10% for China, starting Feb 1. In spite of weekend negotiations and tit-for-tats, we believe that these tariffs are not going anywhere…in fact, this is just the start. Markets will now sift through winners and losers in this new regime. We will do so ourselves in our portfolio.
I recommend putting one’s political views aside when it comes to investing. It is a recipe for muted returns. Make your political statements in other ways if so inclined. e.g. One of my Canadian subscribers cancelled their subscription in protest. I wish them all the best and hope they come back when things settle down. I love Canadians and everything they represent…they are truly some of the nicest people in the world.
Ok, back to markets…
Look for more volatility starting tomorrow Mon Feb 3rd. Tariffs lead to higher prices in the good receiving country and they lead to economic slowdown on both sides of the border due to reduced consumption and trade. Sales estimates for companies caught in the nets are now up for reforecasting. Last time this happened, tariffs were in place for about 12 months before Trump found a way to declare a victory and back off.
How did markets react during this timeframe?
A -20% market decline…not fun.
Debt and interest rates
Last week, the US Feds kept the interest rates unchanged and noted that inflation remains somewhat elevated. Chair Powell emphasized a cautious approach, suggesting no immediate need to adjust policy given the current economic strength.
Meanwhile, we learned that the US Treasury has to refinance about $9.5T of bonds that are maturing in 2025. See the chart below. This is not a F.A.F.O. moment. I consider this to be one of the biggest risks to my portfolio in 2025.
Markets
The SP500 remains in bull market mode, but trapped in a narrow range and could be signalling a double top formation. If tariffs or AI or bonds or some other worry grabs investor attention, we need the index to hold 5,900 or else we could go much lower.
The Nasdaq is in a similar situation - bullish, narrower range and double top. Not surprising given the dominant mega-cap allocation in both indexes.
Small caps are still trapped below the 50dma due to higher LT interest rates. This tariff news is not going to help matters now. Traders were shedding small cap stocks all of last week.
The US$ (DXY) is now threatening to go above the risky $110 mark which will not be good for equities and commodities.
And 10-year LT interest rates ticked higher into the close…again in response to the tariff news. If they cross the 5% line in the sand, then all bets are off.
We believe that crypto, especially Bitcoin, is now in a new base around $90k to $105k. Where it goes from here is a mystery. If markets catch a cold next week, then BTC could see some downside pressure as speculative froth dries off. Then it could recover as a hedge against economic tensions.
What else am I watching?
Now that everyone is fighting everyone else all at once - US, Canada, Mexico, China, US Feds, global central banks, European Union, Greenland, Denmark, Panama, Ukraine, Russia…
…I want to look for leading signals of a macro economic slowdown.
Copper prices could be the best tell as to where this is all heading. Lower means macroeconomic pain is ahead and vice versa.
So I am keeping an eye on Dr. Copper.
Bottomline
Trump seems more determined this time.
Tariffs will linger in place for longer this time.
Markets could be impacted more deeply this time.
It behooves us to closely monitor this situation and manage our portfolios accordingly.
Cheers.
Congrats to all who have shares in PLTR, I bet there are a few here.
Thank you for the calm assessment. As the old adage goes, we want to keep our heads when everyone else is losing theirs. I’m trying to sit on my hands, Think and keep working the process that we use for finding good companies. I trust that holding good companies will result in good outcomes over time. I need to go check the VIX. Volatility seems the most likely scenario for foreseeable future.