Investors Eye Trump’s Second Term Amid Trade Concerns

As Donald Trump begins his second term in office, investors are cautiously optimistic, anticipating a pro-business agenda but remaining wary of potential risks posed by his protectionist trade policies, especially regarding tariffs.

During his inaugural speech, stock futures showed positive movement, with contracts on major indices such as the S&P 500, Nasdaq 100, and Dow Jones Industrial Average rising by 0.4% to 0.5%. Meanwhile, the dollar weakened in the lead-up to the inauguration, as the Trump administration hinted that new tariffs would not be immediately imposed on the new president’s first day in office.

James Reilly, senior markets economist at Capital Economics, expressed a cautiously optimistic outlook, saying, “Although we suspect that a fair degree of volatility will persist for a while, we ultimately expect his first year in office to coincide with a further rally in the US dollar and US equities.”

Trump takes office with an ambitious agenda that includes trade reform, tougher immigration policies, tax cuts, and relaxed cryptocurrency regulations. As investment managers adjust portfolios across various asset classes, many are looking to the president’s inaugural address for clues that could drive near-term market movements.

“Uncertainty remains the watchword, with everyone alert for answers to questions like whether the threat of tariffs will become a reality or remain a negotiating ploy on day one,” said Sam Stovall, chief market strategist at CFRA Research.

Despite lingering uncertainty, some experts believe that initial reactions to Trump’s policies may not be as severe as anticipated. “The Trump bark might be worse than the Trump bite in the early going,” said Michael Arone, chief investment officer at State Street Global Advisors. He predicts that significant policy shifts will unfold over a longer period, allowing markets time to adjust.

However, concerns remain that Trump’s tariff proposals could exacerbate inflation fears, affecting both bond and stock markets. At the same time, his push to tighten immigration controls may ripple across various sectors. On the positive side, efforts to reduce regulations have already given a boost to bank stocks, while the cryptocurrency market has seen gains in anticipation of less restrictive policies.

Wall Street executives, buoyed by strong profits, have voiced confidence that the Trump administration will be beneficial for business, particularly for the banking sector. “Investors have been enthusiastic about the potential loosening of regulations and possible reduction in corporate and business income taxes,” Stovall noted.

The S&P 500’s post-election rally has slowed to a 2.7% gain, following a selloff in early January fueled by inflation concerns. Trump’s first term saw the S&P 500 soar nearly 68%, though volatility, particularly due to a trade war with China, created market turbulence along the way.

In his speech, Trump outlined his plans to launch a series of executive orders targeting key policy areas such as immigration and energy. He teased upcoming actions, including the declaration of a national energy emergency, the opening of new energy exploration, and the introduction of tariffs on foreign imports. “We will tariff and tax foreign countries to enrich our own citizens,” Trump stated.

Additionally, the president announced the creation of an “External Revenue Service” to collect tariffs from foreign trading partners, further signaling his commitment to reshaping U.S. trade policy.

The cryptocurrency industry also has high expectations for Trump, hoping he will follow through on his campaign promises to create a federal bitcoin stockpile, expand banking access to crypto, and establish a crypto advisory council. Despite these hopes, the president did not make specific mentions of cryptocurrency during his inaugural address, leading to a slight dip in bitcoin’s price—from a high of $107,000 to $102,756.

The early days of Trump’s second term could see similar volatility to those of his first administration. In his initial year, the S&P 500 rose 19.4%, following a 5% rally in the first 100 days. However, bouts of market fluctuation, often tied to the trade war with China, were also prevalent.

The S&P 500 closed 0.3% higher on Trump’s first inauguration day in January 2017, but with U.S. markets closed for Martin Luther King Jr. Day, it may take until Tuesday for a clearer picture of market reactions to unfold.