Wall Street wags have taken to calling Donald Trump “President Chaos.” Not without reason.

Stocks today mostly slumped, as political and tariff turmoil came to the fore. The CBOE Volatility Index (VIX), aka “fear gauge,” jumped 4.71%.

Conflicting reports of Deputy Attorney General Rod Rosenstein’s defenestration rattled investors, although by the closing bell, he was still ensconced as the number two guy at the Department of Justice.

Investors will remain on edge to see how this political soap opera plays out. If Rosenstein gets fired or quits, Trump theoretically would have a clearer path to firing Special Counsel Robert Mueller.

Also souring Wall Street’s mood were Trump’s new tariffs on $200 billion worth of Chinese goods, which kicked in today. The U.S. and China called off trade talks.

The new tariffs affect thousands of everyday consumer products. They especially hit technology companies, by targeting semiconductors, modems, routers and other products that are made and assembled in China and exported to America. The tariffs begin at a rate of 10% and increase to 25% next January.

The trade war is fueling inflation. Tariffs are regressive taxes that get passed along to consumers. The latest core inflation data, scheduled for release Friday, will bear considerable weight.

The Federal Reserve starts its two-day meeting tomorrow; the central bank is expected to announce another interest rate hike to quell inflation.

Part of the inflationary equation is the steady rise of oil prices. At the conclusion Sunday of an OPEC meeting in Algiers, cartel leader Saudi Arabia rejected Trump’s pressure for increased output to reduce oil prices.

West Texas Intermediate today climbed 2.08% to close at $72.25 per barrel. Brent North Sea crude soared 3.18% to close at $80.73/bbl. Crude prices currently hover at four-year highs.

The energy patch this year has served as a bellwether for the broader markets, but to glean the direction of stocks, the tech sector provides an even better gauge. The signs are worrisome.

The devil’s bargain…

Rain kept me housebound yesterday, so I thumbed through some old college books. I came across Goethe’s Faust, the 19^th century drama in which the titular protagonist sells his soul to the devil for limitless power. It all ends in tears; these arrangements usually do.

It occurred to me that society has struck a Faustian bargain, with technology companies. We’ve willingly relinquished our privacy, in return for the limitless power of global connectivity. We pay the price whenever personal information is misappropriated.

Investors in tech stocks have struck their own Faustian bargain. In return for outsized growth, they’re shouldering excessive risk. But the devil could soon demand his due.

Bank of America Merrill Lynch’s latest Global Fund Manager Survey shows that the “most crowded” trade this month, for the eighth straight month, is “Long FAANG and BAT.”

FAANG+BAT are acronyms for U.S. tech giants Facebook (NSDQ: FB), Amazon (NSDQ: AMZN), Apple (NSDQ: AAPL), Netflix (NSDQ: NFLX) and Alphabet’s (NSDQ: GOOGL) Google, as well as China’s Baidu (NSDQ: BIDU), Alibaba (NYSE: BABA), and Tencent (OTC: TCEHY).

The chart tells the story:

Source: BofA Merrill Lynch Global Fund Manager Survey

FAANG+BAT companies are among the largest on earth, with a combined market capitalization of more than $4 trillion. Developed markets are getting saturated. So where can FAANG+BAT go for significant future growth? Emerging markets.

A Sino-American clash of tech titans is unfolding throughout countries in Latin America, Asia, Africa, and the Middle East. The financial press gives this secular investment theme scant attention, but at stake is nothing less than global supremacy.

The BATs are gaining ground. The FAANGs are forging ephemeral partnerships, whereas the BATs are purchasing stakes in dozens of small foreign firms to gain lasting footholds.

The Chinese acquirers are targeting “unicorns” (private start-up companies valued at $1 billion or more) in fast-rising markets and integrating them into their existing business ecosystems. They’ve already gobbled up 43% of all Asian unicorns.

The U.S. and China are fighting a new cold war for global leadership and the decisive battlefield is digital technology. FAANG+BAT are public companies but they’re also national proxies.

The winning firms will have the inside track on innovations linked to artificial intelligence, the Internet of Things, virtual/augmented reality, the cloud, and other technologies that convey strategic and not just commercial advantage.

What’s more, the Chinese government is actively adapting public infrastructure with these breakthrough technologies in mind. The U.S. government is making no commensurate effort.

Emerging markets that align with components of FAANG+BAT are also aligning with the tech firm’s country of origin, which in turn spawns political inter-dependency.

But therein lies the danger. Most of these coveted emerging markets are grappling with economic and currency crises. If emerging markets collapse they’ll take the best-laid plans — and stock prices — of American and Chinese tech giants down with them.

As the chart above shows, the second most crowded trade this month is “short emerging market equity.” A handful of tech mega-caps have been driving the bull run.

If FAANG+BAT stocks stumble due to an emerging market meltdown, so will the broader markets. Investors who have sold their financial souls to tech stocks will, like Faust, have hell to pay.

Monday Market Wrap

• DJIA: 26,562.05 -181.45 (0.68%)
  
• S&P 500: 2,919.37 -10.30 (0.35%)
  
• Nasdaq: 7,993.25 +6.29 (0.08%)
  

Monday’s Big Gainers

• Intrexon (NYSE: XON) +31.52%

Medical cannabis firm announces research advances.

• California Resources (NYSE: CRC) +17.63%

Rising energy prices lift oil and gas producer.

• Seabridge Gold (NYSE: SA) +14.16%

Gold miner reports meeting objectives at major mining project.

Monday’s Big Decliners

• Altimmune (NSDQ: ALT) -46.93%

Immunotherapeutic firm announces stock offering.

• Aurora Mobile (NSDQ: JG) -8.74%

China-based mobile big data platform hit by trade concerns.

• Vipshot Holdings (NYSE: VIPS) -7.63%

Analysts turn bearish on China-based online discount retailer.

Letters to the Editor

“Is Facebook banned in China?” — Kevin G.

China blocked Facebook in 2009 because political activists were using the social media platform as part of their communications network. Facebook is not blocked in Hong Kong and Macau.

Questions about tech sector investing? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.