Market Seems to Be Anticipating Slowdown as Trump Optimism Wanes

The equal weight Nasdaq 100 QQEW is up 6.26% year to date versus 2.9% for the Nasdaq 100 QQQ. I remain trading QQQ from the short side. I took off a lot of the shorts on Friday, but will look to reset them.

There are some cracks in the AI narrative, and I’m increasingly being reminded of the fiber build out in the late 1990s and early 2000s. Eventually, all that fiber was used, but not before markets realized we had gotten way ahead of ourselves in valuations. I’ve literally lost count of how many “decent” or better AI models are out there. I subscribe to a couple right now. Will I do more? Will I cut some? Data centers have been all the rage, and will continue to be important, but I’m getting just enough negative tidbits from people I follow, that I’m concerned we might be near a moment where we “question” the valuations again. Like DeepSeek, but bigger.

I’m overweight a few things, which I will continue to be overweight:

• National Security = National Production.
• I like things that this administration will deem important for national security. If you go back to my start of year “best idea” piece, you will find the chip company that I like the most, but companies that will benefit from their ability to manufacture chips here should do well.
• While I’m not a big fan of commodities, I’ve liked the producers. Continue to like XLE (which is also up over 6% year to date) and will likely add more on any dips.
• FXI and KWEB. 
• I took some profit on Friday (as I was cutting QQQ shorts) but will add on dips. China has been under owned by many investors and they are likely to get forced into the market. So far the administration has not cracked down on China and in fact seems to be looking for a deal. Some of the administrations stances towards other nations may push them toward China. I don’t agree with the policies, but it isn’t about what I would like to see, but how I think we can profit from what seems to be happening.

So, as a whole, stick equal-weighted indices over market value. Look for the markets that did poorly during the “American Exceptionalism” trade and accumulate there, while reducing risk to the biggest winners of the past couple of years.

I am getting worried about the state of the economy.

Treasury yields have been declining partly because this administration seems very fixated on keeping yields low. And not just the front end. They talk about the 10-year. That is helpful and that is good for risk assets, if they can achieve that.

What is becoming more apparent is the potential risk that an economic slowdown might be finally getting priced into the market. I think that was a big part of Friday’s trade lower.

It has been a long time since we’ve seen a lot of chatter about recessions, and while that is not on the table, the anticipated growth priced in after the Trump victory seems to be dissipating.

It is the risk of the economic slowdown, that is attracting my attention. There are a lot of “questions” out there on the global stage — Russia/Ukraine, tariffs, etc. — that may be impacting our economy and could show up in the numbers coming out in the next few weeks and months.

So, overall, I’m less bearish yields (I continue to have the income portion of my portfolio heavily skewed towards closed-end municipal funds), but I’m more bearish equities. I think there is a risk that we could see the major indices S&P 500 and Nasdaq 100 pull back to pre-election levels in the near term.

At the time of publication, Tchir was long FXI and KWEB.