Meeks’s Musings: All Aboard the Roller Coaster

You know after reading the title that this article is about President Trump. However, it isn’t all about him.

History tells us that we should lower our expectations for stocks in 2025 or be prepared for something worse. In 2023, the S&P 500’s total return was +26%. Last year, the market was +25%. The last time we had consecutive years in which stocks climbed over +20% was in the late 1990s. That didn’t end well with the S&P down three consecutive years to start the millennium. Of course, the popping of the Internet Bubble had something to do with that.

Is AI (Artificial Intelligence) a bubble too? Has it popped? Maybe the posterchild of AI, NVIDIA, answers both questions. If you’ve been living under a rock, NVIDIA makes the semiconductors (specifically, graphics processing units, or GPUs) that power the development of large-language AI models (LLMs) like OpenAI’s ChatGPT (introduced in November 2022). 

The company’s shares more than tripled in 2023 and almost tripled again last year. At its peak, the company was worth over $4 trillion, which made it the most valued firm in the world. Seemingly just a few years ago, NVIDIA was only hawking its GPUs to video gamers. 

But 2025 has been cruel to NVIDIA and the “AI trade,” particularly after a Chinese AI lab, DeepSeek, claimed that it had launched a worthy LLM in just two months and it only spent $6 million to do so by being more innovative than its US competitors and by training its model on older, less expensive NVIDIA GPUs. No surprise, NVDA’s stock plunged -15% over the week (ended January 30) after that jaw-dropping announcement. 

The AI trade has been propelled by the spending on such gear (e.g., semiconductors, servers, networking equipment, data centers, and energy) by the “hyperscalers” which include Amazon, Alphabet (Google), Meta (Facebook), Microsoft, and Tesla. NVIDIA and Apple round out the “Magnificent Seven” which has driven the technology sector and thus the market because this sector IS the S&P. Note that although there are eleven sectors, just two of them, technology and communication services (featuring social media companies), comprise 41% of the benchmark’s weight. Furthermore, of the top ten stocks in the index, nine are technology firms and the other one (number ten) is Warren Buffet’s Berkshire Hathaway, which has held (although he has sold recently, which may be a hint for us) a massive stake in Apple. 

Why am I being a nerd and writing about this? First, technology investing is me when I am not at The Citadel. Second, the continued success of the AI trade is key to sustaining the bull market in technology stocks which the overall market needs to keep rising. I don’t care if you only own Proctor & Gamble. You could be at least indirectly impacted by the progress at an AI lab in Hangzhou, Zhejiang, China. 

Don’t worry, I’m going to get to President Trump. He plays into our forecast too. 

The President has promised tariffs, mass deportations, tax cuts, and to boost oil production and to lessen regulations. Did I miss anything? From an investor’s perspective, there’s good and bad here. The upside has already been shared. You bought those arguments. You voted for him. 

But here’s the risk to Trump 2.0: Tariffs, deportations, and a tax cut could be net inflationary, and they could overwhelm the potentially deflationary impact of other parts of his agenda. Let’s face it, tariffs will raise prices if US importers pass along their higher cost of goods to customers to preserve their companies’ profit margins. Next, if you deport lots of foreigners in low-cost, low-skilled jobs then who will do them? Since the pandemic, no one seems to want to do such tasks unless you pay them much higher wages. That’s inflationary too. Last, while we’d all, you, me, and our businesses, love to pay fewer taxes, our government’s revenues will drop as its expenses continue to rise. A larger budget deficit could lead to higher interest rates which could choke our economy. Of course, Elon Musk’s DOGE (Department of Government Efficiency) looks to slash bureaucrats’ spending to maybe close the budget gap despite a tax cut. Frankly, I doubt it. 

Overall, I see this administration’s policies, if action meets campaign rhetoric, as net inflationary, which should force the Fed (our central bank the Federal Reserve Board) to keep interest rates higher for longer which would jeopardize the rally in stocks over the past few years. We’ll see. Follow me for updates.

Postscript: Charleston’s Scott Bessent has just been confirmed as the US Treasury Secretary. He’s a Wall Street guru and is likely to be a cooler head advising the president. It was cool that he came to speak to our cadets at The Citadel’s Baker School of Business.