Investors have shown optimism following Donald Trump's second inauguration, expecting positive outcomes from his pro-business policies while keeping an eye on his protectionist trade strategies, particularly regarding tariffs. As the inaugural activities commenced, futures for major stock indices such as the USA Today noted that the Standard & Poor's 500, Nasdaq 100, and Dow Jones Industrial Average were trading up by 0.4% to 0.5%

Despite the initial enthusiasm, caution remains, particularly as the dollar showed signs of weakness before the inauguration, while Trump’s administration signaled no immediate imposition of new tariffs. "Although we suspect that a fair degree of volatility will persist for a while yet, we ultimately expect his first year in office to coincide with a further rally in the US dollar and US equities," remarked James Reilly, a senior markets economist at Capital Economics.

Trump's ambitious agenda promises reforms in key areas including trade, immigration, and cryptocurrency regulations, prompting investment managers to reassess their portfolios. Many are looking closely at Trump’s inaugural address for signs that might influence market movements. Sam Stovall, chief market strategist at CFRA Research, pointed out, "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."

While there is a general expectation of a manageable response to Trump's early actions, some analysts believe ongoing uncertainty could lead to market volatility. Michael Arone, chief investment officer at State Street Global Advisors, believes "the Trump bark might be worse than the Trump bite in the early going," anticipating that the significant effects of policy changes will unfold gradually.

Trump’s policies may lead to inflation concerns, with the potential to affect bond and stock prices, especially his tariff strategies, which may be perceived as inflationary. Nonetheless, easing of regulations is expected to provide a boost to banking stocks and support the cryptocurrency sector's growth.

Corporate leaders on Wall Street are optimistic about a business-friendly environment under the new administration. “Investors have been enthusiastic about the potential loosening of regulations and possible reduction in corporate and business income taxes,” noted Stovall.

The post-election rally of the S&P 500 has seen a correction, dropping to a 2.7% increase following inflation-related selloffs earlier in January. Trump plans to assertively kick off his administration with a series of executive orders concentrating on areas like immigration and energy policy, as he indicated in his speech by declaring a national energy emergency and suggesting new tariffs.

During his address, Trump alluded to the creation of an "External Revenue Service" to manage tariffs collected from foreign partners. The cryptocurrency market, anticipating Trump’s promises as the "crypto president," has been notably active, although Bitcoin's value saw a small dip to $102,756 post-speech.

Historically, a significant rise has been recorded for the S&P 500 during Trump's first term, with a 19.4% increase in his first year. The market reaction moving forward will become clearer post-Martin Luther King Jr. Day, as trade activities resume.

source: USA Today, Reuters