Markets crash, rebound — but is more chaos coming?

• Commentary: Global markets crash... then boom. More uncertainty ahead? What does it mean for small stocks? Gold up, small gold stocks not up... yet.
• The other usual stuff: in tomorrow's new Sunday edition

Remember the last two years where the big end of the market kept going up... and up?

ASX 200, DOW, S&P 500, NASDAQ - all the big stocks just kept rising.

And the long suffering small and micro cap aficionados favourite mantra was:

“Its just a matter of time until this sentiment and money flows into the small end”

We patiently waited and waited...

And then the big end of town (globally) had an almighty vomit seven days ago...

(after the US announced bigger than expected tariffs on nearly every country in the world)

Further scaring off any risk capital that may have been thinking about coming into early stage stocks... like the ones we Invest in.

For a moment at least.

After Trump’s grand reveal of “tariffs for everybody” late last week, Friday was a horror show on the main US market indexes (this happened our Friday night last week):

(US markets plunge 7 days ago)

For those that don’t stare at global markets all day, a more than 2% move up or down in a single day is rare...

a single day move of over 5% or more in either direction is wild.

Thankfully the ASX isn’t open on Saturdays.

But the ASX did have the whole of last weekend to fret, stew and stress about how to respond to the US markets plunge last Friday.

Everyone was preparing for the worst, and as expected, Monday was pretty brutal.

Not a single green stock on our portfolio or watch list - just lots of red and neutral.

And just as quickly as it came, it went.

By Thursday there was a bright green horizon as the sun rose and we woke to check what happened overnight on the US markets.

(US markets surge 3 days ago)

A 10% plus single day move on a major index is the rarest of rare - especially in the “up” direction...

For context this was the second largest EVER single day gain for the NASDAQ and the third largest EVER single day gain for the S&P 500. (Source)

Glorious green...

Trump had decided to pause the tariffs for a 90-day period and the US market ripped.

That morning, the ASX followed with the largest single-day gain in the last 5 years.

And last night was a strong finish on US markets too:

(last night)

So Monday should be a good day on the ASX.

BUT...

A record green day is great and everything, but we certainly aren’t implying there won’t be more wild swings and trouble ahead.

Last weekend (after that big Friday night US market drop) we wrote about how Trump is shaking up markets and global trade like a snow globe (read it here):

And we are currently in peak uncertainty of what it all could mean...

Nobody knows how or when the dust (or snow, rather) will eventually settle.

And this certainly is NOT the final “snow globe shake” we expect to see over the coming months.

Some traders probably managed to make a quick buck from the volatility...

Other traders probably got their faces ripped off when the market wildly and unexpectedly swung back up.

(we aren't traders, we take long term positions and hold during ups and downs so our companies have time to deliver on their plan... and hopefully raise enough cash to do so)

Some brave investors would have used the sudden fear and chaos to pick up some stocks at smashed down prices... and then thoughtfully stared into the distance:

(Source - Cover of The Age last Tuesday)

With our own thumb on our chin, we also thought deeply about what it all means and what might happen next in the markets.

We think over the coming months as the “snow settles” after the shake, there will emerge some new winners and losers in small and micro cap stocks.

The general expectation is to see various new trade agreements start to emerge over the next 90 days between the US and different countries hoping to avoid US tariffs.

Other countries will retaliate with export controls on certain minerals or technologies...and reciprocal tariffs.

So just the sector and country in which a stock operates could determine if they are a winner... or loser.

In addition, we absolutely expect a bunch of totally unpredictable impacts and events to come out of this big shakeup in the world order.

(like Donald Rumsfeld's famous “unknown unknowns” quote - things “we don’t know that we don’t know” - this 30 second quote is always worth a quick rewatch during times of global chaos)

We just have to wait and see how it all plays out.

So if you thought investing in small cap stocks was a casino before, it certainly is now with a major macro shake up over the next few months.

Two key points to take away here:

1. There will be small cap stock winners and losers over the coming months and years depending on new macro trends that emerge as the new global order is established.
2. The near and medium term will be uncertain. Gold and silver like uncertainty.

When even big stocks and currencies aren’t safe and stable places to hide as we saw this week... gold (and silver) are the traditional places to protect wealth.

Yes, markets had a nice rebound this week, but everyone saw the wild swings.

And if a big drop happened last week, it could happen again this week... or next week.

Gold did drop (like everything else) during the few days of the chaos early in the week.

But came roaring back again over the last few days, and closed this morning at yet another all time high (shown on 1 month gold price below):

For further context on the magnitude the gold price rise over the last 3 days, here is the one year gold price chart with just this week's price movements highlighted:

We have been talking about gold for a couple of years now and have positioned our Portfolio into a few small ASX gold and silver stocks (read more in our gold and silver ebook here)

With the gold price running so much - why aren't small gold stock share prices going nuts yet?

We have written over the past few weeks that for small stocks to go up, the capital inflows and buying on-market needs to come from somewhere...

But where?

For small gold and silver stocks - we think the capital is going to come from gold mergers and acquisitions done for cash by large gold producers (who are printing cash at these high gold prices).

Investors in smaller producers that are acquired as major gold company M&A continues will be suddenly cashed up and feeling like genius gold investors... and will likely look to deploy that cash into smaller gold stocks - read more here

(Check out KAU for a small gold producer and how they are about to suddenly become a 30,000 oz per year gold producer in literally 4 weeks from now)

For small caps that are NOT in precious metals, we think US money is going to start coming into small ASX stocks that are sector and location “winners” from the reshuffle in the global world order.

Small stocks with the right projects, in the right country once global clarity begins to emerge.

Well before Trump took office, we've positioned our Portfolio to benefit from some of the key themes that animate many of Trump's moves - read more here

We have a range of ASX-listed, US based Investments, as well as projects across gold, silver and many of the critical minerals that the US government has created urgency to secure.

Last week we wrote about some obvious winners from the Trump Tariffs: US manufacturing, critical minerals and alternative reserve assets, here is the quickfire summary:

1. Winner 1: US manufacturing - The US administration wants to rebuild its industrial base, technologies that unlock this will be a big winner from tariffs.
2. Winner 2: Critical minerals - The US is becoming a less reliable trading partner, having a robust minerals supply chain reduces the national security risk of outsourcing these supply chains to unfriendly nations.
3. Winner 3: Alternative reserve assets (like gold) - Gold reached a new all time high this week, it is becoming more favourable to US dollars in a hostile US environment.

As it stands today there will be a 90-day pause to the tariffs for all countries but China, who has been slapped with a 145% tariff on all goods.

Over the next few months we expect there to be trade deals made between nations and at the heart of these deals expect to see “critical minerals” as the key bargaining chip.

(and this could all change at any moment with a new unexpected event - like we saw with the unexpected tariff pause this week)

How “Critical Minerals” will shape Trump’s tariff policy

When the dust eventually settled this week there was one country that was tariffed more than any.

China.

All goods coming into the US from China will have a 145% tariff on them.

China hit back hard as well with a 125% tariff on all US goods.

So the trade tit-for-tat is heating up.

China is dominant across the processing and export of a number of key minerals for the energy transition and national defence:

In order for the US to build its domestic industrial capacity it needs to secure critical minerals... particularly those minerals that are necessary for a functioning economy and national security.

In his Senate confirmation hearing Senator Marko Rubio talked about just this:

“If we stay on the road we are on right now, in less than 10 years virtually everything that we need in life will depend on whether or not China will allow us to have it or not.”

... and much of what we need to do to confront China is here at home, to rebuild our domestic industrial capacity and ensure that the US is not reliant on any single other nation for critical supply chains.”

While securing then mining the raw critical minerals is one thing - the technology and knowing how to process them into final usable form is a whole different topic for another day...

Speaking of US resources and processing, our Investment Global Uranium and Enrichment (ASX:GUE) recently acquired a uranium project in Wyoming, USA.

Partnered 50-50 with NASDAQ listed Snow Lake Resources.

Snow Lake resources also invested $5.8M in GUE and now owns 19.9% of the company.

GUE owns a cornerstone stake in a unique uranium enrichment company which could be of strategic importance to Western countries like the US.

A key part of Trump’s Executive Order was to encourage not only the rapid increase in mining of critical minerals, but the PROCESSING of raw critical minerals into final, usable products.

(aside from raw critical mineral supply, its the lack of processing abilities where the US and most countries also have a serious strategic and security weak point)

Mineral processing... like uranium enrichment.

That deal between GUE and NASDAQ listed Snow Lake is the first of what we think will be many US companies moving into partnerships with small ASX resource companies. (read more here)

But let’s get back to step one,which is securing raw critical supply first.

We (and the US) can worry about processing it later.

Creating urgency around critical minerals supply - Domestically and from friendly countries

The US strategy to encourage domestic industry capacity through a combination of tariffs and incentives is playing out right now.

Trump announced two key Executive Orders promoting domestic mineral and energy projects:

• Executive Order 1: Unleashing American Energy
• Executive Order 2: Immediate measures to increase American mineral production

This is in addition to pushing the State Department to “make mineral deals”.

(Interestingly, there was a delegate that went to the DRC with Kobold minerals owned by Bezos and Gates. Will Trump turn to Africa to help with mineral supply chains?):

(Source - Wall Street Journal)

Trump has made some bold statements about “acquiring” Greenland and Canada for its critical minerals resources...

He even made “critical minerals” a core part of any deal with Ukraine for continued support in its conflict with Russia.

The next 90 days will be very important for countries looking to do deals with the US, and with the US’ strong interest in “critical minerals” we think that mining projects will become more and more important tools for negotiations.

If an ASX stock has a critical metals project in one of the countries for which the US agrees to do a tariff removal in return for a minerals deal, you might get a share price rally inside the next 90 days...

Last night we found out how China would react to all of this... with a reciprocal 125% tariff back onto the US.

The Economist argues that China could also tighten its grip on rare earth’s exports, affecting key US industries including defence and semiconductor manufacturing in retaliation to the US:

(Source - The Economist)

Further export bans by China on the rare earth industries could see prices dramatically increase, which is good for rare earths companies that have been languishing in the past few months.

Our best leverage to the “rare earths” thematic is through St George Mining (ASX:SGQ).

SGQ recently published its maiden JORC resource for its advanced stage rare-earths/niobium asset in Minas Gerais, Brazil.

SGQ’s project is next door to the largest niobium mine in the world, and its first resource is based on historical drilling that covers just 10% of the project area.

Read our full take on the news here: Our take on SGQ’s maiden resource. It’s shallow and from surface... more drilling to come

The US State Department has a track record of investing in Brazilian rare earths projects last year supporting project funding for the Serra Verde Project:

(Source - US State Department)

US involvement in Serra Verde was through the “Minerals Security Partnership”, which is a consortium of countries encouraging the advancement of critical minerals projects around the world.

We think that these critical minerals projects will become more and more important as the US looks to weaken China’s grip on this critical industry.

It’s not just about demand, but about national security.

With that in mind, critical minerals are starting to become critical bargaining chips in this new global economy.

(Like they sort of were for a couple of years when the electric vehicle boom kicked off during COVID, but this was at a time when countries were a lot more chill with each other compared to today)

And now, with Trump looking to do deals, countries are turning to their resources as a way to advance favour with the new US administration.

We hope that it works out well for our various critical metals investments and will be watching closely to see if Trump signs any deals with countries or regions that we are Invested in.

Could a lithium bull run return in a US-China trade war?

Remember lithium?

Forgotten critical minerals like lithium for example could be the dark horse in the critical minerals race, particularly if the projects are located INSIDE the US.

While lithium is unloved at the moment, we’ve been in the small cap markets long enough to know that certain commodities come in and out of favour in cycles.

And we think lithium will see its time again.

Just last week, news broke that Galan Lithium had knocked back a $150M “opportunistic” offer from a large Chinese company at 3x its then market cap.

Galan took advantage of the speculation to enter a trading halt for a cap raise.

But could this be a signal that lithium companies know their future value and that the bottom is in?

While ~77% of raw lithium supply comes out of Australia and South America... (Source)

65% of processed lithium comes out of China. (Source)

The US currently has negligible representation across the entire supply chain.

Arkansas is leading the charge for the US to address this weak point - with the Smackover region's high grade brines attracting large amounts of both public and private capital.

On Thursday this week there was breaking news that the state of Arkansas is considering a piece of legislation that could remove the sales tax on lithium projects in the state.

This was great news for our US lithium Investment, Pantera Lithium (ASX:PFE).

PFE could be a potential winner in the “snow globe shake”.

Early last year we saw former Trump press secretary and current Arkansas governor, Sarah Huckabee-Sanders speak to a packed room in the state's capitol, Little Rock.

Our analyst on the ground remembers Trump “bestie” Huckabee-Sanders asking every member of local and state government in the room to stand up and identify themselves to the crowd.

In her quintessential Southern twang she said: “I’m going to need y’all to help me out on this one.”

Fast forward to today and Arkansas lithium production could soon be receiving major tax incentives if this bill is passed.

While it still needs to go through some legislative hurdles, this is definitely a good sign for PFE and the petrochemical giants active in Arkansas’ Smackover region.

$745BN ExxonMobil and the Norwegian state backed $111BN Equinor are both building lithium businesses near tiny PFE’s +26,000 acres.

We are Invested in the only micro cap ASX listed company with acreage in the Smackover in Arkansas - PFE.

Read our latest PFE note here: State of Arkansas to remove sales tax on lithium? $6M capped PFE the only ASX listed player, surrounded by giants

So what to expect in markets next week?

Frankly, we have no idea.

It's a wonderfully chaotic time at the moment.

Based on the week just gone, it could be another wild ride.

Which if anything, will be good for gold at least.

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Have a great weekend,

Next Investors