Monthly Outlook: Tariffs, Nuclear, DeepSeek

February's floodgates have opened, unleashing a surge of chaos that's left many investors on edge. With uncertainty running high, here’s a breakdown of three key trends that will be critical in shaping the month ahead.

Trump’s tariff flex

Trump unleashed sweeping trade tariffs on China, Canada, and Mexico on February 1, marking his first major economic action since taking office. A tariff is a tax on imported goods or services. While tariffs generate government revenue, they can also increase costs for importers, who often pass those costs on to consumers. This can lead to inflation and make domestic products more competitive. The risk of higher inflation from tariffs could delay Fed rate cuts, creating potential trouble for stocks moving forward.

According to the official fact sheet, the new tariffs are in response to illegal immigration and drug trafficking. Trump initially ordered a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada will face a lower 10% tariff. Trump also warned that the European Union could face a similar fate. However, in a surprising turn this morning, Trump reached an agreement with Mexico and Canada to pause tariffs for one month. For now, Trump’s tariff policy remains a moving target and could shift further depending on whether countries comply with his demands or retaliate.

The announcement sparked a U.S. market selloff as investors feared tariffs could hurt corporate profits and drive up prices. As you might expect, transportation stocks took a hit. Air Canada (AC:CA), FedEx (FDX:US), and Canadian Pacific Railway (CP:CA) all fell between 5 to 7% in the first trading session after Trump’s announcement. Automakers also felt the pressure, with Tesla (TSLA:US), Nissan (7201:JP), and Honda (7267:JP) seeing similar declines within the 5 to 7% range. A report from S&P Mobility states that in 2024, the U.S. imported around 3.6 million light vehicles from Canada and Mexico, accounting for 22% of all vehicles sold in the country.

While tariffs may have downsides, they could make some sense in a deglobalising world. According to the official factsheet, The White House sees tariffs as a "powerful, proven source of leverage for protecting the national interest." While they could help strengthen America’s long-term position by reshaping trade and reducing foreign dependencies, the question remains—are everyday Americans willing to endure the near-term costs?

Nuclear melts up

Rising energy needs from AI and data centres is fuelling a strong start for nuclear stocks this year. On 22 January, President Donald Trump announced a $500 billion private sector investment to fund AI-related infrastructure, further boosting optimism around nuclear as a stable energy source. At the same time, ongoing energy crises and soaring electricity demand have led some governments to reconsider nuclear power. As of January 2025, approximately 65 reactors are under construction globally, with about 90 more planned.

Investors are already reacting to this renewed focus on nuclear energy. Among S&P 500 and Nasdaq 100 companies, Constellation Energy (CEG:US) is the top performer so far in 2025, up 35% year-to-date. As the largest nuclear operator in the U.S., Constellation operates 21 reactors, solidifying its dominance in the industry. The second-largest U.S. nuclear operator, Vistra (VST:US), has also posted strong gains, rising 20% YTD. Smaller players are seeing even sharper growth. Oklo (OKLO:US), focused on nuclear fission, has soared 110% YTD, while NuScale Power (SMR:US), a leader in small modular reactors (SMRs), is up 35%. Internationally, Australia’s uranium miner Paladin Energy (PDN) has gained 13% YTD. On the ETF front, BetaShares’ URNM, VanEck’s NLR, and Range Nuclear Renaissance NUKZ are some of the ways investors are gaining exposure to the trend.

Nuclear power’s high energy density enables massive energy output from minimal fuel, while its low greenhouse gas emissions make it a more environmentally friendly alternative to fossil fuels. However, high capital costs and long lead times for plant construction remain significant barriers to wider adoption. Despite its potential, the number of operational nuclear reactors, and consequently, global nuclear generation, has stalled over the past three decades.

The Three Mile Island disaster in 1979 and the anti-nuclear movement of the 1980s seemed to be the final nails in the nuclear coffin. However, fast forward to today, rising capital inflows along with shifting government policies could reignite innovation, driving down costs and accelerating construction timelines. That said, reversing decades of technological stagnation in the sector and global anti-nuclear policies will be challenging and could pose ongoing risks for investors. Should the sector continue to gain momentum, its role in the global energy landscape could have far-reaching implications for economies, energy security, and investment trends.

DeepSeek fallout

As we reported last week, DeepSeek rattled markets, causing a 17% drop in Nvidia’s (NVDA:US) stock, its worst day since March 16, 2020. The selloff erased approximately $600 billion from Nvidia’s market value, the largest single-day loss for a U.S. company. Many AI-related stocks, including chipmakers and nuclear stocks, experienced a flash crash, while Bitcoin (BTC/USD) declined 6%.

The story is still unfolding. Reports suggest the Commerce Department is investigating whether DeepSeek accessed Nvidia AI chips via Singapore. Meanwhile, a new report from semiconductor analyst Dylan Patel suggests that the cost of DeepSeek’s compute cluster exceeded $1 billion, contradicting the widely cited $6 million figure, which only accounts for the final training run and excludes capex and R&D. February may bring answers and clarify the ramifications as the dust settles. Key earnings reports from Alphabet (GOOG:US), ARM (ARM:US), Taiwan Semiconductor (TSM:US), and Nvidia (NVDA:US) this month will provide insight into how major players are responding and positioning for the future.

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