Week 11, 2025: Defense Stocks Surge, Trade Tensions Escalate, and Investors Seek Stability
War spending is skyrocketing, tariffs are rattling global trade, and investors are scrambling for safe havens. European defense stocks are soaring, but tech giants are taking a hit. Meanwhile, as the U.S. tightens its grip on trade, Hong Kong and Singapore are quietly becoming investor favorites. And then there’s Trump — playing an unpredictable game that could shake up everything from interest rates to the housing market.
Will markets rebound or plunge deeper into chaos? Buckle up — this week’s market moves could change the game.
European Defense Stocks Soar Amid Increased Military Spending
As U.S. military aid to Ukraine remains uncertain, European nations are significantly boosting their defense budgets. Germany leads this initiative, with the European Union unveiling an US$840 billion plan to modernize military capabilities. This surge in defense spending has propelled the share prices of Germany’s Rheinmetall, Italy’s Leonardo, and France’s Thales by 123%, 82%, and 80%, respectively, since the start of the year, reflecting investor confidence in sustained demand within the defense sector.
Escalating Trade Tensions: U.S. Tariffs and Global Responses
The U.S. has imposed 25% tariffs on steel and aluminum imports, aiming to bolster domestic production. Commerce Secretary Howard Lutnick emphasized the goal of nurturing “a big, strong domestic steel and aluminum capability.” In response, the European Union and Canada announced counter-tariffs, while other nations criticized the move but refrained from immediate retaliation. These actions have heightened concerns about a potential global trade war, contributing to market volatility.
Additionally, the U.S. has targeted Chinese imports with a 10% tariff, which China countered by imposing tariffs on U.S. goods and launching investigations into American companies. These measures have further strained trade relations and added to economic uncertainty.
What is Donald Trump Actually Trying to Do?
Donald Trump’s antagonistic and unpredictable approach to trade policy has left many wondering what his ultimate goal is.
Most economists agree that widespread tariffs tend to be counterproductive and inflationary. However, some believe that Trump’s moves are not random but part of a larger strategic play. Theories include:
Pushing trade partners into a corner to force them to cut their own tariffs on U.S. imports.
Forcing a hard reset on the economy to shift investments from speculation to the ‘real economy.’
Orchestrating a recession to bring interest rates down.
If the third theory holds, the implications are significant. A prolonged bear market, economic downturn, or financial crisis would likely prompt the Federal Reserve to cut interest rates. Lower rates could:
Allow the U.S. to refinance debt at cheaper rates, reducing interest payments and strengthening the case for tax cuts.
Lead to a weaker U.S. dollar, making American exports more competitive and increasing the cost of imports.
Reset the real estate and housing market, making homeownership more affordable.
Eventually benefit growth industries — though only after a period of economic pain.
Impact on Technology Sector: Challenges for Global Supply Chains
The technology sector faces significant challenges due to the new tariffs. Companies like Apple and Amazon, reliant on complex global supply chains, are experiencing disruptions. Foxconn, a major manufacturing partner, described the tariffs as a “big headache,” indicating that these policies are prompting a reevaluation of manufacturing strategies and could lead to increased production costs.
Investors Turn to Hong Kong and Singapore for Stability
Amid escalating trade tensions, investors are seeking refuge in more stable and undervalued markets. Hong Kong’s Hang Seng Index has surged by 17% since January, driven by the appeal of Chinese equities trading at lower prices and a robust technology sector. Similarly, Singapore’s market has risen by 16% over the past year, with earnings forecasted to grow by 10% annually. These trends underscore a broader shift toward markets offering predictability in a turbulent economic environment, rather than just a reaction to U.S. trade policies.
Assessing Market Trajectory: A 10-Point Checklist
To gauge the future direction of the markets, consider the following Seeking Alpha 10-point checklist. If more Xs or question marks turn into checkmarks, markets could rebound swiftly. Conversely, if uncertainty persists or more Xs appear, expect continued volatility and potential downturns.
Growth and recession fears: ❌ (Concerns remain as global trade tensions escalate)
Unpredictable trade policy: ❌ (More tariffs and counter-tariffs are fueling uncertainty)
Cuts to government spending: ❓ (Still uncertain, but budget negotiations are ongoing)
Lower interest rates: ❓ (The Fed hasn’t committed to cuts, but pressure is building)
Lower inflation: ✅ (Inflation has been moderating, which is a positive sign)
Looser regulation: ❓ (Still a wildcard, especially in the energy and tech sectors)
Tax cuts: ❓ (Possible election-year promise, but no clear policy action yet)
Earnings and investment: ✅ (Corporate earnings remain solid, expected to grow by 14% per year, boosting investor confidence)
Consumer spending: ✅ (Resilient despite economic uncertainty)
Low unemployment: ✅ (Labor market strength continues to support economic stability)
Currently, the market reflects a mix of positive indicators, such as low inflation, strong earnings, robust consumer spending, and low unemployment. However, significant concerns remain regarding growth prospects, unpredictable trade policies, and potential cuts to government spending. The balance of these factors will play a crucial role in determining the market’s future trajectory.
The ‘Trump Put’ vs. The ‘Fed Put’
Investors are contemplating the existence of a ‘Trump Put’ — the notion that President Trump might reverse policies if markets decline significantly — alongside the traditional ‘Fed Put,’ where the Federal Reserve intervenes during economic downturns. With the overall U.S. market down 6.7% since the start of the year, the President has yet to change course. It remains uncertain at what point, if any, policy adjustments will occur, leaving investors to navigate a landscape marked by both opportunities and risks.
The Timeless Strategy: Wealth Through Value and Patience
Despite all these, the best way to generate superior returns while protecting ourselves from economic and geopolitical uncertainty is to invest in high-quality, cash-generating businesses over the long term that deliver real value to the economies they serve.
Focus on the cash. Focus on the value. Buy at a discount. Ignore the noise. Think in decades, not days or months.