Market Update 3.11.25

The Volatility Will Continue Until Morale Improves 

The “American Exceptionalism” trade had become extremely crowded, fueled by years of U.S. equity outperformance and reinforced by institutional cash levels hitting 20-year lows. When everyone is leaning the same way, the unwinding isn’t just painful—it’s swift and unforgiving.

Year to date as of March 10th, the NASDAQ has dropped 9.5%, while the DAX has surged 16%, and China/HSI is up 20%. Moves like these don’t happen in isolation – they’re the product of capital fleeing in an over-owned, over-hyped trade and rushing into areas that were long overlooked. Nothing fuels violent price action quite like a market caught offsides. Let’s recap some important events:

Deflation of the AI Hype

The launch of DeepSeek’s lower cost AI model called into question the massive capital spending by the “Magnificent 7” or “Hyperscalers”. These companies had been priced as though their AI dominance was unshakable. This crowding, in part, was driven by record-strong earnings and impressive free cash flow generation.

That said, if the Netscape vs. ChatGPT analogy continues to hold, this correction isn’t just expected—it’s right on schedule (almost to a “T”).

Source: Bespoke Investment Group

President Trump’s Policies

“The market and the economy have just become hooked. We’ve become addicted to this government spending, and there’s going to be a detox period.” – Scott Bessent 

“There is no President Trump put.” – Scott Bessent

Thus far, it appears that President Trump is allowing Bessent to craft economic policy and market messaging. This administration has been more focused on 10YR Yields than the stock market as a barometer for their early success. 

The latest string of on-again, off-again tariffs (additional 10% on China, 25% on Mexico and Canada) have brought levels of uncertainty that haven’t been seen since the Great Financial Crisis. Additionally, a steady spate of softer economic data is suggesting a cyclical slowdown, which investors have been quick to extrapolate into “recession fears”.

US Policy Uncertainty Index

Source: Bloomberg

Germany’s Fiscal Pivot

Germany, long the poster child of fiscal austerity, is making a decisive shift toward expansionary policy. The country is actively loosening its self-imposed (debt brake), Merkel-era rule from 2009 that capped structural borrowing at just 0.35% of GDP. Additionally, they are proposing a €500 billion infrastructure fund to be deployed over the next decade. The message is clear: after years of restraint, Germany is ready to spend.

To put this in perspective, back in 2006, Germany and the U.S. had nearly identical debt-to-GDP ratios, both around 60%. While Germany has maintained that level to this day, the U.S. has seen its debt burden nearly double to 120%. This divergence underscores two very different fiscal trajectories.

Source: Bloomberg

Valuation Matters Again

We have been vocal in the past about how valuations have crept up to near-historical highs amidst the dominance of American equities. It was only a matter of time before companies began to trade at reasonable multiples again.

Alibaba is trading at 14x P/E (excluding cash), Walmart at 40x, Constellation at 25x, among many others. The market is reacting violently, but that does not change the fact that great businesses are out there and could potentially be trading at very attractive multiples.

In Summary

DeepSeek’s Impact – DeepSeek was a game-changer, exposing a major capital misallocation that had been overlooked.

President Trump 2.0’s Market Focus – This administration is prioritizing the 10-year Treasury yield over equities, with no sign of a “President Trump Put” to support markets.

Germany Embraces Fiscal Expansion – After years of austerity, Germany is ramping up spending, loosening its debt brake, and deploying major infrastructure investments.

China’s Tech Revival – Xi is signaling a return to pro-business policies, breathing life back into China’s tech sector.

Peak US Positioning – The overcrowded U.S. trade is unwinding, forcing investors to rebalance after years of over-allocation.

Valuation Matters Again – The market is rotating from growth to value, and from the U.S. to the rest of the world, as fundamentals take center stage.

If you have questions, contact your Unique Wealth advisor or schedule a call.

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