The return of Donald Trump to the White House on Monday marks the beginning of a potentially volatile period for global markets. Investors are closely monitoring the new administration’s moves, particularly its stance on trade and immigration, both of which are expected to influence asset prices and shape the economic landscape in the coming months.
Trump’s proposed tariff policies are already stirring fears of heightened inflation, which could put significant pressure on both bond and stock markets. In addition, his immigration reforms, which are expected to tighten controls, are set to ripple across various market sectors, further complicating the economic outlook. However, one area where optimism persists is the expected rollbacks in financial regulations, which could lead to a surge in asset prices, particularly in sectors like cryptocurrency and banking stocks.
“The markets will be very sensitive to this speech,” noted Jeff Muhlenkamp, a portfolio manager at Muhlenkamp & Co. “Everyone right now is trying to parse every word and nuance that comes from Trump or his biggest allies.” Financial markets are poised for sharp reactions, as any unexpected moves from the administration could trigger significant shifts in asset values.
While some market participants have already priced in key policy proposals from Trump, such as tax cuts, deregulation, and tariffs, the inauguration speech could provide important clues about the direction of the new administration. Doug Peta, Chief U.S. Strategist at BCA Research, remarked, “Financial markets are primed to move on any indication that the new administration might pursue a different course than it has telegraphed up until now.”
Historically, stock market responses to presidential inaugurations have been relatively subdued. Since World War II, the S&P 500 has posted an average decline of 0.27% on the day of inaugurations. However, this time could be different, given Trump’s unpredictable nature and his ability to stir market movements with his rhetoric, say investors.
During Trump’s first term, the S&P 500 experienced a substantial 68% rise, though it was often marked by bouts of volatility, largely driven by his trade war with China. The anticipated market shifts are not only a response to the inauguration but also a continuation of broader trends. Investors have been adjusting their portfolios in anticipation of Trump’s return to office, with many so-called “Trump trades” gaining momentum ahead of his victory in November’s election. One notable example is the surge in Tesla’s stock, which has risen by 60% since the November 5 election, largely due to the backing of CEO Elon Musk, a vocal Trump supporter.
However, some Trump-driven trades have faltered. Stocks in regional banks and small-cap companies, which were expected to benefit from a regulatory rollback, have seen some of their post-election gains dissipate. Similarly, the broader stock market has lost some of its previous momentum. After an initial post-election surge driven by optimism over Trump’s pro-growth policies, including tax cuts and deregulation, the S&P 500 has only increased by about 1% since November 5.
Persistent inflation concerns are also dampening investor optimism, with many market participants now anticipating that the Federal Reserve may end its interest rate-cutting cycle earlier than expected, further weighing on stock market performance.
Investors are particularly cautious about the potential disruptions caused by specific policy areas. Alex Morris, president and chief investment officer of F/m Investments, expressed concerns about Trump’s tone in his inaugural address. “The longer that anger continues,” Morris said, “the more likely it is that bonds get cheaper, equities get cheaper.” Market watchers will be listening carefully for any signs of heightened frustration or conflict, as such sentiment could exacerbate volatility.
As Donald Trump settles back into office, the financial world braces for the uncertain path ahead. With market volatility on the horizon and Trump’s policies set to leave their mark on global trade, immigration, and finance, the coming months will be crucial for investors and economists alike.