Given the unpredictability of Trump and his ability to shock the market through his rhetoric, this situation may be different.
Author: Xiao Yanyan
Source: JinShi Data
Trump's inauguration next Mondaymay signal that the market is entering a more turbulent period, with the Republican expected to quickly take action on a range of broad issues, including trade and immigration, which are expected to impact asset price volatility.
Trump's tariff plan may further exacerbate inflation concerns, putting pressure on bond and stock prices, while efforts to tighten immigration controls could also impact these markets. Deregulatory measures may boost assets including cryptocurrencies and bank stocks.
"The market will be very sensitive to this speech," said Jeff Muhlenkamp, portfolio manager at investment management firm Muhlenkamp & Co. "Now, everyone is trying to parse every word and nuance said by Trump or his closest allies."
Some prices have already reflected expectations of Trump's policy goals, including tax cuts, reduced regulation, and tariffs on foreign imports. The speech may also lay the groundwork for White House actions in the coming days and weeks.
"The financial markets are poised to react if there are any signs that the new administration may take a different tack than previously communicated," said Doug Peta, chief U.S. strategist at BCA Research.
Generally,the stock market's reaction to presidential inaugurations has been relatively muted, but given Trump's potential unpredictability and his comments' impact on the market, this time may be different.
According to data from LSEG, the average decline in the S&P 500 index after presidential inaugurations since WWII has been 0.27%, with about half the time the index rising or falling on the day of the inauguration speech or the first trading day after (if the speech is on a non-trading day).
After Trump's last inauguration speech in January 2017, the S&P 500 index rose 0.3% that day. Since next Monday is Martin Luther King Jr. Day, the U.S. stock and bond markets will be closed, so many trading reactions may not materialize until Tuesday.
During Trump's entire first term, the S&P 500 index has risen nearly 68%, but the market has experienced some volatility, partly due to Trump's trade wars.
The Driving Forces Behind the "Trump Trade"
Of course, for months, investors have been adjusting their portfolios based on the impending changes in the White House, and many of the so-called "Trump trades" had already accelerated before the November election as Trump led in polls and betting markets.
For example, Tesla (TSLA.O), led by Trump supporter Elon Musk, has soared 60% since the November 5th election. Other rising assets include , which has gained more than 30% since Trump's victory, as investors are optimistic about a more friendly regulatory environment. Private prison stocks Geo Group (GEO.N) and CoreCivic (CXW.N) have risen about 100% and 60% respectively, as investors expect a crackdown on immigration to increase demand for detention centers.
"The market is trying to price in policy before it manifests in any clear way," said Tony Roth, chief investment officer at Wilmington Trust.
However, some "Trump trades" have faded. These include regional bank and small-cap stocks, which had been driven by expectations of Trump's deregulation, but have erased at least some of their post-election gains.
The broader stock market has also lost momentum. The optimism around Trump's agenda to promote economic growth, including tax cuts and reduced regulation, has generally benefited stocks after the election. But the S&P 500 index has pulled back, rising only about 1% since November 5th. Persistent inflation has led the market to expect the Federal Reserve to end its rate-cutting cycle sooner than previously anticipated, dampening the market's momentum.
Beware of Tariff Talk
Investors remain wary of specific topics that could trigger a market meltdown.
DWS Group's Americas chief investment officer David Bianco will be listening for any hints of tariff implementation in the inauguration speech, adding that "Trump has the ability to act on tariffs, and he may act quickly," which could "impact investor sentiment."
Specifically, Bianco said, "the bond market should be on alert for Trump's comments." Last Friday, the benchmark U.S. bond yield reached its highest level since November 2023, as a strong U.S. jobs report exacerbated inflation concerns.
Investors note thatTrump may express some unusual ideas, such as his recent desire to annex Greenland, or promote goals that could lead to significant spending, which could exacerbate concerns about the growing fiscal deficit.
"I'm looking at which business leaders may attend the inauguration events," said Jay Woods, chief global strategist at Freedom Capital Markets. "This may be more about individuals looking to establish internal connections with the White House," Woods said.
Alex Morris, president and chief investment officer at F/m Investments, said he will be watching Trump's tone, including "every sentence that focuses on anger rather than policy or platitudes." Morris said:The longer the anger persists, the more likely bonds and stocks will decline.
Fxstreet analyst Dhwani Mehta said gold prices paused their three-day uptrend on Friday,as gold traders may look to book profits and adjust positions ahead of Trump's inauguration next Monday.
