Analysis: Trump's US presidency return ushers in new era of volatile markets

Geo

15/01/2025 11:00

* 
      Investors closely watching Trump's Jan 20 inauguration
speech
    

        * 
      Trade, immigration, regulation among potential topics in
focus 
    

        * 
      Stock market had tepid reaction to past inaugurations, but
some
say this could be different
    

  
    By Lewis Krauskopf and Suzanne McGee
       NEW YORK, Jan 15 (Reuters) - Donald Trump's inauguration
on Monday could herald a more volatile period for markets, with
the Republican seen moving quickly on a wide swath of issues
including trade and immigration that are expected to swing asset
prices.
    Trump's tariff plans could further fan inflation fears that
pressures bond and stock prices, while efforts to tighten
immigration controls could also reverberate through those
markets. Moves to ease regulation are poised to lift assets,
including crypto and bank stocks. 
    "The markets will be very sensitive to this speech," said
Jeff Muhlenkamp, a portfolio manager at investment management
firm Muhlenkamp & Co. "Everyone right now is trying to parse
every word and nuance that comes from Trump or his biggest
allies.”
    Some prices already incorporate Trump's expected policy
aims, among them tax cuts, reduced regulations and tariffs on
foreign imports. The address could also lay the groundwork for
White House actions in the coming days and weeks.
    “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,” said Doug Peta, chief U.S.
strategist at BCA Research.    
    In general, stocks have had a tepid reaction to presidential
inauguration, although this time could be different given
Trump's potential to be unpredictable and ability to shake
markets with his commentary, investors said.
    With inaugurations since World War II, the S&P 500 has
posted an average decline of 0.27%, with the index rising or
falling on about half the occasions on the day of the speeches
themselves or on the first day of trading following instances
markets were closed, according to LSEG data.
    Following Trump's last inaugural address, in January 2017,
the S&P 500 ended up 0.3% on the day. The U.S. stock and bond
markets are closed on Monday, which is also the Martin Luther
King holiday, so much of the trading reaction may not be evident
until Tuesday.
    During the entirety of Trump's first term, the S&P 500 rose
nearly 68%, but markets saw bouts of volatility, stemming in
part from a trade war Trump fought with China.
     
    STEAM BEHIND TRUMP TRADE?  
    Of course, investors for months have been shifting
portfolios based on the impending change in the White House,
with many so-called "Trump trades" gaining steam even ahead of
the November election when he was leading in polls and betting
markets.
    For example, shares of Tesla  TSLA.O , which is led by Trump
backer Elon Musk, have soared 60% since the Nov 5 election.
Other gainers include bitcoin, which has jumped over 30% since
Trump's win amid optimism for a friendlier regulatory
environment, and private prison stocks Geo Group  GEO.N  and
CoreCivic  CXW.N , which have climbed about 100% and 60%,
respectively, as investors anticipate an immigration crackdown
could increase need for detention centers.
    "The markets are trying to start to price in policy before
the policy has come into vision in any clear way," said Tony
Roth, chief investment officer at Wilmington Trust. 
    Some "Trump trades," however, have faded. Those include
shares of regional banks and small-cap companies, which are both
expected to benefit from a de-regulation push under Trump, and
have given up at least some of their post-election gains. 
    The broader stock market has also lost steam. Optimism over
Trump's expected pro-growth agenda including reduced taxes and
regulations broadly benefited equities following the election.
    But the S&P 500 has pulled back and is now up about 1% since
Nov 5. Persistent inflation is leading markets to predict the
Federal Reserve will end its interest rate cutting cycle sooner
than previously hoped, undercutting the stock market's momentum.
   

    WARY OF TARIFF TALK
    Investors are wary of specific topics causing ruptures.  
    David Bianco, Americas chief investment officer at DWS
Group, will be listening for any hints about tariff
introductions in the inauguration speech, adding that "Trump has
got the ability to take action on tariffs and he probably does
very quickly" and that such comments could "sour the mood for
investors." 
    In particular, Bianco said, "the bond market should be on
guard" for Trump's comments. Benchmark Treasury yields, which
rise when bond prices fall, on Friday hit their highest levels
since November 2023 after a blowout U.S. jobs report fueled more
inflation anxiety.
    Investors are mindful Trump may voice some unusual ideas,
along the lines of his recently expressed desire to annex
Greenland, or tout goals that suggest major spending, which
could exacerbate concerns about the expanding fiscal deficit. 
    Jay Woods, chief global strategist at Freedom Capital
Markets, said he is watching which business leaders might be
attending the inauguration events.
    "That could speak a little more to the individual companies
that are looking to get an inside track with the White House,"
Woods said.
    Alex Morris, president and chief investment officer of F/m
Investments, said he will be listening for Trump's tone,
including “every sentence that focuses on his anger rather than
policy or platitudes."
    "The longer that anger continues," Morris said, "the more
likely it is that bonds get cheaper, equities get cheaper."

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US stock market post-election bump fades    https://reut.rs/40jaPkK
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 (Reporting by Lewis Krauskopf and Suzanne McGee, additional
reporting by Laura Matthews; editing by Megan Davies and Anna
Driver)
 ((lewis.krauskopf@thomsonreuters.com; Twitter: @LKrauskopf;))