Weekly Digest: Chicken & chips

This is the final Weekly Digest of 2025, but I am not presenting you with an alternative menu for Christmas (as nice as it sounds). No, chicken and chips are the two words that I could use to describe the main forces that have driven financial markets this year. The ‘chicken’ refers, mainly, to President Donald Trump, as characterised by Robert Armstrong of the Financial Times in the phrase “Trump always chickens out”.  Hence the “taco trade” of leaning into Trump-induced market disruption in the belief that he will not go ahead with his aggressive threats. (There are other chickens in the coop too, to be revealed later.)
The ‘chips’ side of the plate (in this case of the specialised processor kind) refers to the general artificial intelligence (genAI) theme that has dominated equity markets this year (at least in terms of the role of the leading players and their contribution to broader equity index movements). It feels as though we are reaching an inflection point where investors are going ask big spenders to “show me the money” in terms of revenue and profits from their genAI investments. This could make 2026 even more challenging than 2025, although I would be quick to reiterate the fact that we are not in the equity market bubble camp. 
 

Figure 1: 7 Stocks post over half of the S&P 500's return so far this year

Tacos all round

The biggest serving of tacos came in April. With the S&P 500 index down 19% from its peak in response to his ‘liberation day’ tariff declaration, bond markets being on edge and the dollar falling sharply, President Trump announced a pause just a few days later. The worst-case scenario at the time was an average tariff rate of around 27% on all imports into the US. That has now subsided to around 12%. 

The movement has been at the expense of concessions from exporters to the US, but the level is considered manageable, even if it’s not yet clear where the extra costs are being absorbed in the US itself. There remains some concern that an inflationary impact from the tariffs may linger in the new year, preventing some Federal Reserve officials from voting for interest rate cuts. But, whatever the delay, the full effects should be visible some time in the first half of 2026 and should not be repeated thereafter (further possible tariffs notwithstanding). In fact, in another display of chicken-like behaviour, the President was compelled to reduce punitive tariffs on some imports from Brazil, including coffee and beef, owing to rising domestic prices for these ‘staple’ goods, to which consumers are highly sensitive. 

Indeed, the increasing cost of living for many lower and middle-income Americans has sent Trump’s approval rating to a new low of 42%, according to the latest NBC poll. The same poll shows that just half of self-identifying Republicans see themselves as supporters of the MAGA movement today, down from 57% in April. 64% of those polled think the economy is “on the wrong track”. None of this is necessarily bad news for investors. It increases the probability that the government will do more to stimulate the economy ahead of the November 2026 mid-term Congressional elections. 
President Trump’s other big chicken impersonation came in October, when he retreated from imposing higher tariffs and trade barriers on China. The main reason for the reversal was that China had, in turn, announced its intention to withhold supplies of important rare earth minerals that are crucial inputs to all sorts of manufactured goods. Of course, Trump dressed it up as a win, citing, for example, China’s agreement to import greater volumes of soya beans – mid-west farmers are a key source of votes. 

This pattern of behaviour, escalating potential crises only to de-escalate them and reducing tariffs where it suits him politically, is so well ingrained that it seems improbable that it will change during the second year of Trump’s presidency. The President will want to appear strong in the run-up to the mid-terms, while not upsetting the economy. I think we can expect more of the same in 2026, although nothing quite as shocking as liberation day. 
 

Domestic chickens

There are a couple of other characters who have talked big in 2025 but failed to follow through with action, and they live much closer to home. Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves have ventured a couple of big policy proposals that were well received by market participants. The first was a bill to reduce welfare spending; the second an across-the board increase in the basic rate of income tax that would raise revenue from all taxpayers, while plugging a gap in the country’s finances, without imposing further costs on employers.

In the event, neither policy lever was pulled, and whatever excuses might have been given, the key reason in both cases was a rebellion from Labour backbenchers. Not only do they tend to lean further to the left than the residents of Downing Street, but they also appear more concerned with preserving their seats than doing what financial market operators think is better for the country’s long-term health.

Recent UK economic data is not making the leadership’s prospects look any brighter. The reading on Citigroup’s UK Economic Surprise Index has plummeted from +60 in June to a current -46, which is getting close to five-year lows. The Budget offered a chance to reset growth policy, and the opportunity was not taken. If growth fails to pick up soon, of which there is little sign, then the chickens may come home to roost for Starmer and Reeves next year.

Chips with everything

It’s been impossible to escape the influence of genAI on market performance this year. Back in January, DeepSeek launched its first large language model (LLM) at minimal cost, apparently created with cheaper, less advanced chips than the kind Nvidia produce, but still ‘good enough’ for the majority of consumers. The whole technology sector seemed to be facing an existential threat. That turned out not to be the case, and planned spending on data centres and associated infrastructure has just ploughed higher. 

Even so, the fortunes of individual companies have waxed and waned and it’s instructive to see just how quickly investors’ views can change. Earlier this year, both Alphabet and Apple were under a bit of a cloud. Google’s dominance in search was under threat from various LLMs, while Apple’s reluctance to join the genAI investment spree was deemed to be a mistake. Investors have since reassessed the situation. Google’s Gemini 3 product looks like a market leader for now, and Apple’s lack of spending leaves its finances in a very healthy state when investors are worrying about rising debts elsewhere. Alphabet’s shares have gone from down 23% for the year in April to now being up 63%. Apple might only be up 12% on the year, but it is up 61% from its lows.

Figure 2: Alphabet and Apple rebound from earlier weakness to post gains (%) in 2025

Happy (?) 2026!

It seems highly probable that we will be revisiting both these themes regularly in 2026. But for now, the Weekly Digest is taking a break until the second week of January. The next publication will be the Monthly Digest at the beginning of next year, in which I will take a broader look at performance in 2025 as well as consider the potential key issues in the year ahead. In the meantime, let me wish you a very relaxing Christmas holiday and, as always, a peaceful and prosperous New Year.