(Bloomberg) — Week one in all the Trump administration was, as advertised, filled with excitement in financial markets — just not the form of excitement most investors had anticipated.
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The Trump trades that became so popular in the course of the campaign last 12 months — load up on US stocks and the dollar, go light on international stocks and bet against Treasuries — only fared OK. US stocks jumped, sure, but not as much as they did in Japan and Germany and even parts of emerging markets. The dollar tumbled and the Treasury bond market was calm all week, with most yields quietly grinding lower.
President Donald Trump conducted loads of business in his first week in office, signing executive order after executive order, holding impromptu press conferences, mugging for the camera, crisscrossing the country, however it was the one thing he did not do — immediately slap tariffs on US trade partners — that triggered the surprising market response.
This had been a pledge he made throughout the campaign and it was a serious piece of the Trump trade thesis: Punitive tariffs, as high as 60% on China, would hurt rival economies excess of the US, sinking their currencies against the dollar and rekindling inflation in all places. It was the market interpretation of America First. For no less than one week, though, it was America Last.
“A bias towards US assets quickly became the consensus position following the election, but with no latest tariff announcements in Trump’s first week, we’re seeing sentiment improve around international equities and currencies,” said Adam Phillips, managing director of investments at EP Wealth Advisors. “America First trade took a breather this week.”
To be clear, US stock gains were robust. The 1.7% advance within the S&P 500 was the very best begin to a presidential term since Ronald Reagan in 1985. Yet the gains just weren’t all that eye-catching in a market that’s been on a tear for the higher a part of two years nor, more importantly, when put next to the rallies seen elsewhere. Stocks climbed some 2.4% in Germany, 3.9% in Japan and around 5% in Mexico.
Underneath the surface of the broad market gauges, winners and losers of the brand new era stood out. Oracle Corp., a serious player in a Trump-backed $100 billion AI three way partnership, soared 14%, probably the most in 4 months. Space stocks jumped on Trump’s promise to land American astronauts on Mars while Tesla Inc. dropped after he told his administration to contemplate removing subsidies for the electronic vehicle industry.
As Trump tempered his rhetoric on tariffs, the dollar weakened against major currencies. By one measure, the greenback looked poised for the most important weekly slide since November 2023, marking the worst performance on the onset of a presidential term since no less than the Seventies.
Emerging-market currencies were amongst the most important gainers against the dollar, with the Colombian peso, Hungarian forint and Polish zloty all advancing greater than 3%. The bet: the White House will deploy trade threats principally as a negotiating tool, no less than for now, to extract concessions out of nations.
US Treasuries were a rare quiet corner in markets. After getting lashed in recent weeks on concern the brand new administration’s agenda will swell government borrowing and stoke inflation, bonds eked out the smallest of gains. The yield on 10-year notes was little modified from per week ago, marking the smallest move since September.
In fact, all the pieces under Trump can famously change as fast as he can hack out a tweet. The sweep of the administration’s agenda — lower taxes, large-scale deregulation, immigration crackdowns and more — adds an additional layer of uncertainty for the inflation-obsessed market. And the competing goals inherent within the agenda are causing confusion for investors. A mass deportation of undocumented immigrants, as an example, would clash with goals to juice economic growth without fueling inflation.
“You continue to have the conundrum of the way you triangulate all that Trump wants,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “You would like lower inflation but you wish tariffs – how do you pull that together? You would like a weaker dollar but you wish tariffs. It’s going to be really hard to get all three of those directly and the market is waiting still to see which one prevails.”
While volatility broadly subsided in stocks and bonds in the course of the first week, a slew of assets did whipsaw on Trump’s pronouncements, from the dollar to commodities. Crude prices immediately dropped Thursday, after Trump jawboned the market lower, telling world leaders gathered in Davos, Switzerland, that he would ask Saudi Arabia and other OPEC nations to “bring down the price of oil.”
Yet while it’s tempting to cite the White House as a driver of market moves, even greater forces are at play. Not least is a US economy that refuses to decelerate while corporate earnings are again beating analyst estimates.
Still, if Trump’s first term is any guide, reading an excessive amount of into the early days of his presidency is a mistake. Back in 2017, Treasuries fell while American stocks trailed their overseas counterparts on the onset, only to be reversed by the top of his tenure. Trump may yet spur a fresh rout next week, when more executive orders arrive in an already jam-packed trading period between the Federal Reserve policy gathering and the Big Tech earnings season.
But when anything may be said concerning the first few trading sessions, it’s this: Investors are betting their tax-cutting commander-in-chief can be a friend to Corporate America and, perhaps, less of an enemy to overseas corporations than they envisioned.
David Lefkowitz, head of US equities at UBS Global Wealth Management, notes that Trump won the election last 12 months largely because Americans felt burned by the inflation spike that hit shortly after the Biden administration took office. That’s making the president wary of imposing tariffs, he wrote in a note. “Policies that further stoke higher prices won’t be politically popular.”