As the calendar flips to 2025, the markets are clinging to a cautiously optimistic narrative. Lower taxes and a pro-business political climate have fueled hopes of stronger corporate earnings, and for the first quarter or so, this honeymoon might even hold. Investors, after all, have a knack for ignoring storm clouds until they’re standing in the rain.
But if you squint past the confetti, there’s trouble brewing. The bond market—always the sober adult in the room—has been quietly signaling that inflation isn’t finished with us yet. Yields have crept higher for months, reflecting rising concerns about both fiscal policy and supply chain shocks. And let’s not ignore the elephant in the room: China.
After a brief thaw in U.S.-China relations, it seems we’re headed back to the trenches of a trade war. Tariffs are making a comeback, and while they might sound like a politician’s dream—a tax that doesn’t look like a tax—they’re an investor’s headache. Input costs rise, supply chains scramble, and margins shrink. This year could look a lot like 2018, with one critical difference: businesses are running out of easy fixes.
The Bond Market Saw This Coming
Let’s talk inflation. Over the past year, the narrative was that central banks had finally regained control. But bond traders never quite bought it. They’ve been watching fiscal policy with side-eye skepticism, and with good reason. Tax cuts and deficit spending don’t exactly scream “disinflation.” Layer on the re-ignited trade war with China, and you’ve got a recipe for rising prices.
Tariffs, by design, make goods more expensive. Companies can either absorb the costs (good luck with that) or pass them along to consumers (which fuels inflation). And this time, the tariff targets are likely to be more sophisticated—think high-tech components and industrial equipment—making it even harder to avoid price increases.
In other words, the bond market’s pessimism might just be justified.
China Trade Wars: Redux
When tariffs were first introduced during the Trump administration, many companies scrambled to pivot their supply chains away from China. Tim Cook at Apple was one of the few who navigated the chaos masterfully, leveraging production in India and Vietnam to mitigate the impact. But even Cook can’t defy gravity forever. China remains critical to Apple’s revenue stream, particularly as a consumer market.
The same goes for many other U.S. multinationals. For all the talk of “decoupling,” China remains an irreplaceable part of the global economy. Tech companies, consumer goods firms, and industrial giants are all exposed. The question for 2025 isn’t whether trade tensions will hurt—it’s how much.
Companies to Watch: Winners and Losers
Not all companies are equally vulnerable. Some are well-positioned to weather the storm, while others are likely to take a hit. Here’s a look at who might thrive—and who might stumble.
Potential Losers
- Apple (AAPL): Despite its supply chain diversification efforts, Apple’s reliance on the Chinese market makes it vulnerable to tariffs and consumer sentiment shifts.
- Nike (NKE): Heavily dependent on Chinese manufacturing, Nike could see higher costs erode margins.
- U.S. Agriculture: Soybean farmers remain the quintessential victims of trade wars, with tariffs on agricultural exports likely to re-emerge.
Potential Winners
- AMD (AMD) and Qualcomm (QCOM): These chipmakers have made significant progress in diversifying manufacturing to Vietnam and India, reducing dependency on China.
- Tesla (TSLA): By producing vehicles locally in its Shanghai Gigafactory, Tesla has insulated itself from many tariff-related risks.
- Lockheed Martin (LMT): Defense contractors are uniquely insulated from trade dynamics, with revenues tied to U.S. government spending.
- Prologis (PLD): This logistics-focused REIT benefits from rising demand for warehouse and distribution infrastructure as companies rethink their supply chains.
A 2025 Investment Theme
Given these dynamics, I’m considering creating a fictional portfolio to track this investment theme throughout the year. It would pair long positions in companies like Prologis, Tesla, and AMD with shorts in tariff-exposed names like Nike or agricultural ETFs. The goal? To see whether the winners can truly outshine the losers in what’s shaping up to be a chaotic year for trade and inflation.
Of course, the real lesson here isn’t just about picking stocks; it’s about adapting to an evolving macro environment. Inflation might not look like it did in 2022, but it hasn’t disappeared. And while lower taxes might give the market a sugar rush, the long-term implications of trade wars and fiscal policy are impossible to ignore.
Good luck, soybean farmers!