Donald Trump’s swearing-in ceremony on Monday might signal a more turbulent time for markets, with the Republican anticipated to act swiftly on a broad range of issues, including trade and immigration, which are likely to impact asset values.
Trump’s plans for tariffs could heighten concerns over inflation that affect bond and stock values, while moves to enforce stricter immigration measures might also make waves in those markets. Efforts to ease regulations are set to enhance various assets, including cryptocurrencies and bank stocks.
“The markets will be highly responsive to this speech,” remarked Jeff Muhlenkamp, a portfolio manager at investment firm Muhlenkamp & Co. “At this moment, everyone is trying to analyze every term and detail that emerges from Trump or his main supporters.”
Various prices already reflect Trump’s anticipated policy objectives, such as tax reductions, fewer regulations, and tariffs on imports. The address could also set the stage for forthcoming actions from the White House in the days and weeks ahead.
“Financial markets are ready to react to any signals that the new administration may take a different approach than what has been communicated until now,” stated Doug Peta, chief U.S. strategist at BCA Research.
Historically, stocks have shown a mild response to presidential inaugurations; however, this scenario may be unique due to Trump’s unpredictability and his ability to influence markets with his statements, say investors.
Since World War II, the S&P 500 has experienced an average drop of 0.27% during inaugurations, with the index fluctuating on roughly half of the occasions either on the speech day or on the initial trading day when markets were closed, as per LSEG data.
After Trump’s inaugural speech in January 2017, the S&P 500 registered a gain of 0.3% that day. The U.S. stock and bond markets will be closed on Monday due to the Martin Luther King holiday; thus, much of the trading response might not become apparent until Tuesday.
Throughout Trump’s first term, the S&P 500 surged nearly 68%, although markets faced instances of volatility, partly stemming from a trade conflict with China instigated by Trump.
Investors have been realigning their portfolios for months in anticipation of the impending shift in leadership, with many so-called “Trump trades” gaining traction even before the November election, during which he was favored in polls and betting markets.
For instance, shares of Tesla, led by Trump supporter Elon Musk, have risen 60% since the Nov 5 election. Other beneficiaries include bitcoin, which has soared over 30% since Trump’s victory, spurred by hopes for a more favorable regulatory landscape, along with private prison stocks Geo Group and CoreCivic, which have jumped about 100% and 60%, respectively, as investors predict that an immigration crackdown may increase the demand for detention facilities.
“The markets are attempting to preemptively price in policies that have yet to be clearly defined,” stated Tony Roth, chief investment officer at Wilmington Trust.
However, some “Trump trades” have diminished in value; notably, shares of regional banks and small-cap companies—both expected to gain from regulatory rollbacks under Trump—have relinquished at least a portion of their post-election gains.
The overall stock market has also lost momentum. Anticipation for Trump’s pro-growth policy framework, including lower taxes and fewer regulations, initially provided a lift for equities after the election.
Nevertheless, the S&P 500 has retraced its gains and is currently up about 1% since Nov 5. Ongoing inflation concerns are compelling markets to foresee a sooner ending of the Federal Reserve’s interest rate cuts than previously expected, undermining the stock market’s upward momentum.
Investors remain cautious about specific issues that could trigger disruptions.
David Bianco, Americas chief investment officer at DWS Group, will be attentive to any indications regarding tariff implementations during the inauguration speech, noting that “Trump possesses the capability to act swiftly on tariffs, and his comments could potentially dampen investor sentiment.”
Specifically, Bianco highlighted, “the bond market should be vigilant” concerning Trump’s remarks. Benchmark Treasury yields, which rise when bond values decrease, reached their highest points since November 2023 on Friday following a robust U.S. jobs report that exacerbated inflation concerns.
