2-19-25: Trump’s Strategy of “Reconnaissance Through Battle”

by Ivan Martchev

February 19, 2025

There has been downside volatility in the U.S. (much of it associated with tariffs) and upside volatility in Europe, particularly the German stock market (much of it due to the coming federal election, in which Chancellor Sholz’s coalition is expected to lose badly) and, of course, the positive volatility extends to the diplomatic process to end the war in Ukraine, also led by President Trump, so you can say that much of the recent volatility in global stocks can be traced to President Donald J. Trump.

I recently saw an interesting term that I had not heard in a while to describe President Trump’s approach to the political process. According to The Guardian on February 15, Polish Foreign Minister Radosław Sikorski noted at the recent Munich Security Conference, “President Trump has a method of operating which the Russians call razvedka boyem – “reconnaissance through battle” [in which] you push and you see what happens, and then you change your position … and we need to respond.”

As I write this on Sunday, there is an emergency summit convened by President Macron of France with EU leaders, including UK prime minister Kier Starmer to discuss how to deal with “Donald Trump’s attempts to seize control of the Ukraine peace process,” as The Guardian article put it. This is truly bizarre: Is it really possible that these EU leaders are worried that Trump wants to end the war?

If the war ends in 2025, this will be a major positive for Europe and the world. And if the trade war does not produce a worst-case scenario but more trade deals, it will be a major positive for U.S. equities.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Friday’s range-bound trading saw the S&P 500 come within a point of an all-time high. Needless to say, I think we will see a fresh all-time high in February, but I have to say that it is not hard to create a sharp correction after one of the President’s tweets. He has moved the market several times already with tariff headlines creating intra-day swings of over 1%. The 200-day moving average is a little over 400 points away from the S&P 500’s present levels, and the market can sink fast, even after it hits all-time highs.

In trading lingo, the President’s tweets are called “tape bombs,” in that they can move the S&P 500 by 50 points (c. 1%) in a minute or two, and if there are countermeasures by global powers to his policy tweets, it is not hard to see the 200-day moving average put into play. President Trump is moving much faster than he did in his first term, as he knows this is his last term, and with this aggressive approach I fear the volatility in the stock market may be larger than I had originally anticipated.

When they come, though, I think successes on the trade front and peace in Ukraine will be celebrated by the stock market. It is just that a sharp correction that lasts more than a day cannot be ruled out.

We had a bad January inflation report that the stock market successfully shrugged off after an initial negative reaction. January tends to reveal seasonal inflation. Yes, January delivered a bad report the same time last year, too, although, if the aggressive trade negotiations turn into a real trade war, I do not believe the stock market would like to see more bad inflation reports. Fingers crossed, but so far it looks like the same old Trump trying to make a deal, but he sure is operating on turbo-drive so far – through Day #30.