Wall Street rallies as Trump's second term begins

[UNITED STATES] As Donald Trump reclaimed his position in the Oval Office on Monday, January 20, 2025, financial markets responded with a wave of optimism. Investors across the globe welcomed the 45th President's second inauguration, interpreting it as a harbinger of a reinvigorated pro-business agenda that could potentially reshape the economic landscape of the United States and beyond.

The air of anticipation surrounding Trump's return to power was palpable, with market participants keenly observing his inaugural address for clues about the administration's immediate priorities. Trump's speech, while reaffirming his commitment to bolstering key industries and implementing trade reforms, notably lacked the aggressive rhetoric that some had feared. This measured approach provided a sense of relief to investors who had been bracing for more dramatic policy announcements.

Alex Morris, CEO of f/M Investments, captured the prevailing sentiment among market watchers: "So far, we have seen a lot of threatened action, but not yet any follow through in the form of action on immediate imposition of tariffs on key trading partners". This observation underscores the cautious optimism that has taken hold in financial circles, as the market digests the implications of Trump's second term.

The president's ambitious agenda, spanning trade reform, immigration policy overhauls, tax cuts, and a loosening of cryptocurrency regulations, has set the stage for what promises to be a transformative four years. Trump's pledge to bolster the U.S. oil, gas, and power industries resonated with energy sector investors, while his reiterated intention to collect "massive amounts" of tariffs kept trade-sensitive industries on high alert.

However, the absence of immediate, aggressive action on tariffs – a key concern for many market participants – helped to buoy investor confidence. The Trump administration's decision to issue a broad trade memo directing federal agencies to evaluate U.S. trade relationships with China, Canada, and Mexico, rather than imposing new tariffs on day one, was seen as a more measured approach to trade policy implementation.

This nuanced stance on trade was reflected in currency markets, with Marc Chandler, chief market strategist at Bannockburn Global Forex, noting, "There is a relief rally in foreign currencies right now". The Mexican peso, often viewed as a barometer for Trump's trade policies, gained ground against the dollar in the absence of specific new tariff announcements.

The stock market's initial reaction to Trump's inauguration was positive, with futures on the Standard & Poor's 500 index trading up around 0.3% following the ceremony. While U.S. exchanges were closed for the Martin Luther King Jr. holiday, this uptick in futures suggested a favorable outlook for Tuesday's opening bell.

Investors and financial advisors are now grappling with the question of how Trump's policies will translate into tangible economic outcomes. Josh Strange, president of Good Life of NoVA, a financial advisory firm, articulated the key concerns on investors' minds: "The big question on investors' minds right now is going to be 'how' -- how will he cut costs and lower inflation and lower interest rates". The lack of specifics on tariffs and immigration in the inaugural speech has left room for speculation and analysis in the coming days and weeks.

The cryptocurrency market, which has become increasingly mainstream since Trump's first term, is poised for potentially significant developments. The president's campaign promises to create a federal bitcoin stockpile, expand bank access to digital assets, and establish a crypto council have set high expectations within the industry. Moreover, the launch of Trump's branded cryptocurrency, which saw its market value soar to over $10 billion on inauguration day, has raised both excitement and ethical questions about the intersection of presidential power and digital finance.

Despite the overall positive market sentiment, some analysts urge caution. Paul Ashworth, Chief North America Economist at Capital Economics, pointed out that Trump is expected to sign nearly 100 executive orders in the coming days, which "will set the tone on what we can expect from his administration in a wide range of policy areas, particularly immigration and energy". This flurry of executive action could introduce volatility into markets as investors digest the implications of each order.

Looking back at Trump's first term provides some historical context for market expectations. During his initial year in office, the S&P 500 rose an impressive 19.4%, following a 5% rally in his first 100 days. Over the entirety of his first term, the index climbed nearly 68%, though this period was not without its bouts of volatility, particularly during the trade tensions with China.

Wall Street CEOs, reporting surging profits, have expressed optimism about the incoming administration's potential impact on the banking sector. The expectation of a business-friendly environment and the possibility of regulatory easing have contributed to the positive outlook for financial institutions.

However, potential challenges loom on the horizon. Trump's tariff plans could exacerbate inflation fears, putting pressure on bond and stock prices. Additionally, efforts to tighten immigration controls may have far-reaching effects across various sectors of the economy.

As the dust settles on inauguration day, investors and analysts alike are poised for a period of careful observation and strategic positioning. The coming weeks will be crucial in determining whether the market's initial optimism is justified or if adjustments will be necessary as the full scope of Trump's second-term policies comes into focus.

While the markets have responded positively to Trump's return to the White House, the true test lies in the implementation of his ambitious agenda. As policies unfold and executive orders are signed, investors will be watching closely to see how campaign promises translate into economic realities. The interplay between trade reform, fiscal policy, and regulatory changes will shape the investment landscape for years to come, making this a critical juncture for market participants across all asset classes.

As the nation embarks on this new chapter under familiar leadership, one thing is certain: the financial markets are in for an eventful and potentially transformative four years. Whether Trump's second term will deliver the economic boom his supporters anticipate or face unforeseen challenges remains to be seen, but for now, Wall Street appears cautiously optimistic about the road ahead.