Market Comment - January

While the new president-elect of the US is hard to miss, the big news of the month of January did not come from the White House, but from China. While the new administration can be compared to a barking dog, owning a good public relations department, the arrival of a new artificial intelligence software from China called “DeepSeek” stunned investors across the globe. Unlike ChatGPT, which is a closed-source AI, only accessible through its creators’ servers, DeepSeek gives the user complete control as it is an open-source software. Consequently, the number of unanswered questions about market implications from that new software model went through the roof, and several industry groups and sectors witnessed extraordinary volatility. From the mid-month highs, the US Semiconductor Index dropped 14.10%, Crude Oil fell 8.67%, Uranium dropped 12.24%, and Natural Gas crashed a stunning 31.63%. Obviously, there was a hidden agenda in the artificial intelligence trade. Investors expected a sharp increase in energy demand, especially from data centers, that is now strongly questioned by the market. Apollo Management expected growth in data, calculated by Zettabytes of data, to more than double from 2024 to 2028, with data center power demand to increase 160% through the rest of the decade. If those expectations are wrong remains to be seen. By the end of January, semiconductors were able to recover 4.08% of the losses, Uranium recovered by around 5.00%, while Crude Oil and Natural Gas did not rebound at all. Out of the ashes of increased volatility, we saw a surprising result: European Equity Markets are outperforming the US, despite a relatively weak Euro. Regardless of being blamed for the lack of growth, lack of innovation, and high regulations, European equities are currently doing very well. Meanwhile, in the US, of all the chaos that Donald Trump’s second term is visiting upon America, nothing compares to DOGE. With the blessing of the Trump administration, DOGE has been going through every part of the U.S. federal government, looking for payments to cancel, programs to suspend, and employees to fire or place on leave. Over the last few weeks, DOGE has moved so fast, and often so secretively, that nobody can quite seem to figure out what it’s doing. The whole thing is shrouded in a fog of chaos, with accusations and counteraccusations of illegality flying thick and fast. The new administration is trying to implement the promises made to electors, such as deportations, tariffs, and government spending cuts. Unfortunately, the market did not like tariffs at all, and Mr. Trump scaled back his plans on bogus arguments. As previously mentioned here, one big promise of the new US president is tax cuts. Those need to be financed. The government has only two options: cut spending and raise tariffs. There is no other way around it. The market now eagerly awaits the new budget. For now, we have seen neither substantial spending cuts nor substantial tariff hikes. The barking has been loud, but no biting has been recorded. The big spending cuts in the US budget have not been addressed, and the big tariff hikes promised have not been implemented. Finally, most voters for Trump want lower prices across the board. How the administration will achieve this remains elusive. The energy market is much more complex than the US president thinks. For the time being, it looks like the most powerful and rich are profiting from the new administration. History tells us that unbridled greed for money and power can plunge a once-great nation into ruin.