Trump, Fed, and AI Rivalry: Trends Reshaping Markets in 2025
January 28, 20252025 started with a bang – there are certainly no shortage of headlines.
What does it mean for risk assets, though?
My initial read from the conversations on our trading desk is that many investors think the “easy wins” from last year (like tech stocks) could be behind us.
I think there are three big shifts in investors’ mindset:
(1) expectations for a shorter easing cycle by the Fed,
(2) markets going from jubilant to cautiously optimistic about Donald Trump’s second term, and
(3) the realisation that the U.S.-China AI race is far closer than many had expected after the DeepSeek announcement.
Clients will spend a lot of time thinking about how these variables are interconnected.
The combination of tariffs, proposed tax cuts, fiscal spending, and deregulation could spur domestic growth in the U.S., but at the risk of inflation. When you add the sharp rise in oil prices and strong labour market report, it will be harder for the Fed to continue its easing cycle. So, Powell will remove the proverbial punch bowl supporting asset prices. Remember that higher rates weigh on valuations and companies’ discounted future earnings.
However, there are plenty of reasons to think some of these concerns might be overdone.
To start, Trump’s policies could turn out less inflationary than they sound. On tariffs, there might be a big difference between rhetoric (or negotiation strategy) and implementation. Oil prices could see some relief from the “drill baby drill” policy. Lastly, many of Trump’s appointments are moderate, if not outright fiscally conservative (check out my last post https://lnkd.in/gQEzGCYe).
Similarly, the recent concerns about the Fed tilting hawkish (or less dovish) might also start fading. Aside from a possible more tempered Trump, remember that markets already did a lot of “tightening” for the Fed. Higher yields, stronger dollar, and higher oil prices are constraining forces on credit and demand in the U.S.
Lastly, the new Chinese open-source AI model, DeepSeek, could cause a major reshuffling in the AI sector by challenging the notion that only massive tech giants will dominate AI. Cheaper access to AI with less need for computing power can be highly deflationary.
While the start of the year has been challenging, it’s important to maintain perspective. The interplay of these macro trends will continue to shape market dynamics, swinging the sentiment pendulum back and forth from bearish to bullish. In other words, investors need to be nimble. The easy wins may be over, but the investment landscape is still full of opportunities.
Nilesh Jethwa
Chief Executive Offer – Marex Solutions Division
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