Besides striking the Houthis, the White House went on the attack in trying to swat away outcries over this security breach, claiming no classified material was discussed. In its follow-up, The Atlantic, whose editor Jeffrey Goldberg was unwittingly added to the chat group, published the full transcript and proved that Tulsi Gabbard, director of national intelligence, and CIA director John Ratcliffe have been economical with the truth in their testimony in Congress. Perhaps the only silver lining in this post-truth world is the endless viral memes and parodies showing boundless creativity and the use of artificial intelligence (AI).
However, it was less funny on Wall Street when Trump declared on NBC that “he couldn’t care less” if car makers hiked prices due to tariffs. It may be because First Bro Elon Musk’s Tesla is the net beneficiary, being the least dependent on foreign components than other automakers.
Tesla rebounded from US$225 ($302) to US$259 by the end of the quarter, but despite the combined efforts to talk it up, it is still down 30% in the year to date. Tesla is at a paltry 130 times earnings for believers at current levels. Presumably, our boring Straits Times Index, trading at 13.7 times even as it made a new record of just over 4,000 points, has lower downside risks.
Decline and fall
In his six-volume landmark work, The History of the Decline and Fall of the Roman Empire, historian Edward Gibbon described the period from 98 AD, deemed the peak of the Roman Empire, to 1590, after Byzantium, the Eastern arm succumbed to the Ottomans.
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The central thesis of the first volume, published in 1776 — coincidentally the same year Adam Smith published The Wealth of Nations — was that the Roman Empire’s demise was the result of the gradual loss of civic virtue and a theory about the role of its adoption of Christianity, which led to a superstitious Dark Age.
Only in the “Age of Reason” during the Enlightenment, with the emphasis on rational thought, could human history once again progress, claimed Gibbon. Interestingly, evangelical Christians make up part of the Maga coalition, even if Bishop Mariann Budde, who asked Trump to “show mercy” at the inauguration prayer service, was called “nasty” by Trump. Vice-President JD Vance, a Catholic who has taken up the mantle of leading Trump’s attacks, too has been corrected by Pope Francis for his views on Christian teaching.
With Maga, Vance’s ordo amoris or “order of love” view of the world is loving your family, then your neighbours, then your community and your fellow citizens in your own country, and then you can focus and prioritise the rest of the world. Pope Francis meanwhile wrote that “Christian love is not a concentric expansion of interests that little by little extend to other persons and groups”. “The True ordo amoris … we discover by meditating constantly on the parable of the “Good Samaritan” … builds a fraternity open to all, without exception”. Alas, as “beggar thy neighbour” continues unabated, US reputational damage worsens and US consumers and industries are now paying the price.
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Whether America First policies will ultimately restore the US supremacy in manufacturing over Chinese cost and DeepSeek’s ingenuity remains to be seen. Trump has talked about “some pain” his faithful may have to bear in the interim as he sets out to deliver the promises made. As long as America is winning in his definition, it matters less that Wall Street undergoes what Treasury Secretary Scott Bessent calls a “healthy correction”.
It’s the economy — stupid
Compared to most other investment banks and brokers’ market prophecies at the start of the year, Chew on This held a contrarian view. They were ebullient about US stocks, US tech, and Trump’s pro-growth, low tax and no-red-tape policies. We had warned that the Trump Trade, underpinned by minted crypto coins before the inauguration and belief that his sensitivity to Wall Street’s success would rein his mercurial excesses, were risky assumptions. The market’s mistakenly pricing in the fear of inflation and uncertainty caused by radical policies will lead to a quicker slowdown and potentially a hard landing. That interest rates will ease sooner rather than later.
This scenario has played out quickly as market expectations changed while economic data is still playing catch-up. I have been asked how I could be so sure that the most innovative and dynamic economy in the world and the US marketplace, which sucked up capital globally to invest in the S&P, Nasdaq and its private markets, will slow down this year. Why are you still not a buyer after a normal correction in 1Q2025 that has only taken the S&P down 10% and the Nasdaq barely 15% from their peaks, they asked?
If US and global CEOs promise Trump billions of dollars cumulatively to build Stargate and onshore manufacturing capability, shouldn’t the promises of business spending and onshoring boost economic activity?
This may likely happen, but it will take significant time and cost, with self-inflicted tariffs and supply chain disruptions slowing it up. As the White House trumpets its “victory”, promises such as Taiwan Semiconductor Manufacturing Co’s US$100 billion investment may not materialise. Some US big tech firms have lapsed their options for data centre infrastructure on home soil.
Given how past projects supported by laws and grants under former president Joe Biden could be reversed, rational businesses would naturally hesitate to make multi-billion dollar and multi-year commitments today. As businesses cope with an environment of flip-flop policy changes, the sensible decision by many large companies is to talk up their Maga credentials but wait and see before actually spending.
Even attempts at appeasement to America, as characterised by Li Ka-shing’s sale of ports, including the two at the both ends of Panama Canal to BlackRock, have run aground as geopolitics complicates his residual businesses in China. Beijing fired a salvo across the bow, instructing its state-owned enterprises to review all future business dealings with his business empire, which promptly resulted in a delay in the completion of the sale.
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The widening of the US trade deficit in January and February has been attributed to an outsized import of gold by the US, with the metal hitting record prices as an indicator of heightened risk. Commodity prices, leading indicators of the economy, bear watching. As copper prices reached an all-time high at the end of the first quarter, BNP Paribas warns of a “collapse” in prices due to lots of overstocking to the US ahead of April tariffs. Financial markets tend to overshoot on either side and if industrial demand slows up with a tariff shock, we might be at the start of a commodity selloff.
What about the US consumer
The biggest driver of the US economy is consumer spending. In 4Q2024, it represented 68% of the US GDP. Wealthy consumers who make at least US$250,000 a year account for nearly 50% of all spending. Similarly, these top 10% of households own nearly 90% of stocks. Recent studies have shown that for every dollar of stock markets rise, at least 2.8 US cents goes to additional consumer spending. Some estimates are as high as 50 US cents for certain categories of consumers.
Following a US$5 trillion loss this year, the negative wealth effect will sap energy from the indefatigable US consumer bludgeoned by Trumpian economic policies that have raised prices. In addition, the 21 million potential casualties of Elon Musk’s Doge cuts will tighten their belts, worrying if the next email in their inbox will announce they have been fired. A market correction could start a vicious cycle.
Capital flight
Perhaps of greatest significance is the “pause in US exceptionalism”, as termed by Citigroup. Chew On This previously pointed out that European sovereign investors and Swiss private banks had started selling big US names. A “great disentanglement” where European portfolios, currently “stuffed to the gills with US stocks” worth US$9 trillion at the end of 2024, may unravel, according to Katie Martin of the Financial Times.
Investors everywhere are already “hugely overexposed to the US” primarily because of index benchmarks and the history of US equity outperformance, given that 64% of MSCI world is allocated to the US. Even so, as experts point out, a lighter allocation to Trump’s America is now “basic risk management”. If so, just getting to “neutral” weight could see trillions of investment dollars fleeing the US and could already explain European equity’s gain of more than 10% against the red ink in the US.
Already Chew On This has speculated at the start of the year that the underweight of a small 3% global benchmark allocation to China, which represents the second-largest economy in the world, could lead to a sustained rerating of an extremely cheap valuation compared to the US extreme. This has played out in 1Q2025 with just a trickle coming back in. I am looking to buy into corrections in Chinese equities, which are still at the start of a global rebalance. If the Japanese raise domestic or ex-US equity allocation, other markets like Singapore could have more legs.
The “great European exit from US stocks” may have just begun. The US correction in 1Q2025 may be the prelude to a rout. For all those retail investors punting Nvidia and Tesla on platforms like MooMoo, I sincerely hope they understand put options and learn to short.
Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange. He was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
