Market Briefing: Market Rotation, Tariff Shock, and the New Momentum Trade

Happy New Year and welcome to new kind of market environment with both opportunities and challenges. Global markets enter the week on edge with U.S futures are soft, safe-havens are ripping, and Davos is awaiting. 

• Two forces are now reshaping the landscape at the same time:
  (1) A geopolitical tariff shock between the U.S. and Europe
  (2) A major rotation away from Big Tech and into new momentum pockets
• Together, they’re creating one of the broadest leadership shifts since early 2023.

1. The Macro Shock: U.S.–E.U. Tariff Clash Escalates

What Happened

• President Trump announced new tariffs on eight European countries, explicitly tied to pressure on Denmark to sell Greenland.
• U.S. futures fell over the long weekend; European equities also slipped, especially autos, luxury, and exporters.
• The E.U. is weighing a $93B retaliatory tariff package and may activate its Anti‑Coercion Instrument, a coordinated economic defense tool.

Why It Matters

• Analysts warn the real risk isn’t tariffs — it’s capital flows.
• Europe holds ~$8 trillion in U.S. bonds and equities.
• Even hinting at capital‑market retaliation could shake global liquidity far more than trade measures.

Market Impact

• Safe‑havens (gold, silver) hit new highs.
• The euro strengthens as the dollar stays defensive.
• European defense stocks continue to lead.
• U.S. cyclicals and exporters remain under pressure.

2. The Market Rotation: Big Tech Loses Momentum

What’s Changing

• Big Tech — the dominant trade of the past two years — is quickly falling out of favor.
• A major tech‑heavy ETF is on track for its longest losing streak since 2023.
• Traders are reallocating capital into new momentum pockets as megacap valuations stretch and political uncertainty rises.

Why It’s Happening

• AI enthusiasm remains, but positioning is crowded.
• Macro uncertainty (Fed pressure, geopolitical tension) is pushing traders toward sectors with cleaner catalysts.
• The tariff shock accelerates the rotation by pressuring global growth expectations.

Where Money Is Going

• Industrials, defense, energy‑security, and under‑owned cyclicals.
• European equities, which have stronger relative strength and lower tariff exposure.
• Safe‑havens and FX pairs tied to capital‑flow risk.

3. The Combined Question

With Big Tech losing momentum and U.S.–E.U. tensions rising, how should traders position as leadership shifts and capital‑flow risk becomes the dominant macro theme?

4.  What We Know

• Expect continued broadening of market leadership as traders rotate out of crowded megacap tech and into sectors with stronger near‑term catalysts.
• Europe remains the relative‑strength region, especially in defense and industrial autonomy themes.
• U.S. markets face elevated volatility, especially if tariff rhetoric escalates into capital‑market signaling.
• Safe‑havens remain in play as long as geopolitical uncertainty persists.
• The wildcard: If Europe signals willingness to use its financial leverage, markets could reprice quickly, with FX and rates leading the move.

Takeaway

The market is no longer being driven by a single theme.
It’s being driven by two simultaneous rotations:

• A geopolitical rotation — away from U.S. concentration and toward Europe and safe‑havens.
• A sector rotation — away from Big Tech and toward defense, industrials, and under‑owned cyclicals.

This is a market that’s broadening, not breaking — but the path forward will be headline‑driven, capital‑flow‑sensitive, and volatile

Bottom Line 

This week could be all about headlines trigger algo-driven volatility, particularly intraday swings. This should create a pocket of opportunity for us to have some good trades.