Trump’s Return: Sparks a new wave of Market Turmoil

Donald Trump’s inauguration on Monday is a historically risky prospect for global markets. He is characterized by a challenging stance on trade and immigration, which can be expected to promote price changes in assets. More specifically, proposed tariffs will ignite inflation fears and affect monetary and equity markets, while substantial difficulties in immigration policies may ripple through a wider area.

This, together with his plans to rein in regulations, will undoubtedly have a multiplier effect in creating good prospects for certain specific assets, particularly in terms of cryptocurrencies and banking stocks. Policy shifts, which have significant potential to modify market dynamics within a short span, are being anticipated by investors. The Trump administration will impart its own unique volatility in markets within the next few months from the arcane and ambiguous approach to uncertainty that marks its new beginning.

Investors looking for Trump’s next stance

Markets are going to be very sensitive to this speech, said Jeff Muhlenkamp of investment firm Muhlenkamp & Co., as every word is parsed by Trump and his colleagues. Markets have priced into many of the expected policies of tax cuts, deregulation, and tariffs. This speech may bring forth more immediate actions by the new president, which could change the behavior of the markets.

According to Doug Peta, chief U.S. strategist in New York for BCA Research, the financial markets are well poised to react if the administration turns towards a less expected direction. Increased anticipation of policy changes has put the investor population on edge, making markets more volatile and more sensitive to the emergence of new information.

Amid the inauguration, stocks stay cautious

In historical context, stocks haven’t really shown much enthusiasm around presidential inaugurations. Since World War II, the S&P 500 has averaged a 0.27% decline. It’s gone up or down on inauguration day or the following trading day if there was an inauguration-day closure, LSEG data shows.

This time, though, could be different due to Donald Trump’s unpredictability and his comments that can spark the markets. The investors are on tenterhooks, and they know that his sayings may trigger such huge volatility that may well cause a more recurrent market movement than any other presidential transition in the past.

Market shows uncertainties

After Trump’s final inaugural address in January 2017, the S&P 500 concluded up 0.3%. With U.S. stock and bond markets shut down on Monday for the Martin Luther King holiday, market reactions to his latest address may not be visible till Tuesday.

Under Trump’s first term, the S&P 500 increased by about 68%, even though its progress was volatile through most of it, largely owing to his trade war with China. Investors are also quite cautious in light of this since the Trump policies are bound to continue affecting economic sentiment. And, indeed, his policy pronouncements tend to influence the market.

Trump trades continue to rise

Investors have been rebalancing portfolios since months ago amid expectations of Mr. Trump reoccupying the White House, with many “Trump trades” picking up pace even before this November election. Its shares of Tesla, led by a Trumpian Elon Musk, soared 60 percent since November 5. Shares of Bitcoin also have a 30 percent increase riding on optimism with a more supportive regulatory environment ahead.

Also, private prison stocks like Geo Group and CoreCivic increased by 100% and 60%, respectively, as investors believe that immigration crackdowns will attract demand for detention centers. Market shifts in such stocks reflect the confidence of investors in policies that fit into Trump’s administration.

Market experience ease

Looks like the markets are trying to guess the policy before it’s even clear what it’s going to be, Tony Roth, the chief investment officer at Wilmington Trust, said. Some of those “Trump trades,” like regional banks and small-cap stocks, have pretty much faded away, losing the gains they picked up after the election, even with all the hype about deregulation.

The broader stock market also lost steam as the S&P 500 increased only 1% since November 5. While optimism about Trump’s pro-growth agenda initially boosted equities, persistent inflation has led markets to expect the Federal Reserve to halt interest rate cuts sooner, undermining stock market momentum.

Investors supported tariff talks

Investors are wary of particular issues that might disrupt markets. David Bianco, America’s chief investment officer at DWS Group, is one of those who are paying extra attention to possible tariff talks during Trump’s first speech. He says, “Trump has the ability to take action on tariffs and probably will quickly,” which will further dampen investor sentiment.

Mr. Bianco added that the bond market should keep alert, following a strong US jobs report that sent benchmark Treasury yields soaring and increased fears of inflation. Investors are cautious about unconventional ideas, such as Trump’s latest remarks about annexing Greenland or ambitious spending targets that may heighten concerns over fiscal deficit.