Market Sentiment Shifts as Investors Question Trump’s Policy Execution
As the dust settles on the election, investors are reassessing their initial enthusiasm for “Trump Trades.” With doubts creeping in about the president-elect’s ability to deliver on his ambitious tariff proposals, asset classes are experiencing a correction.
Dollar and Treasury Yields Reverse Course
The dollar’s post-election surge has largely been erased, trading little changed on Friday. Similarly, Treasury yields have returned to recent ranges after a brief whipsaw. This reversal suggests investors are reevaluating the likelihood of Trump’s policies coming to fruition.
Chinese Stocks and Yuan Recover
Earlier hammered by concerns over higher tariffs, Chinese stocks and the yuan have regained ground. This rebound indicates that investors are now questioning the severity of Trump’s tariff threats.
Focus Turns to Federal Reserve and China’s Fiscal Stimulus
As the market jolt subsides, attention is shifting to other significant events: the Federal Reserve’s easing path and China’s fiscal stimulus. These factors will likely influence market sentiment in the coming weeks.
Investors Take a Step Back
“There’s a sense that even the most exuberant Trump Trade investors are taking a step back to think: at this point, are the bets overdone?,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. Traders are now thinking about the execution and how some of Trump’s policies can be transmitted effectively.
Tariff Uncertainty Weighs on Markets
A key question on investors’ minds is how much of Trump’s threatened tariffs – up to 60% on Chinese goods – will become a reality. This uncertainty is causing some investors to take profit on trades that fared well earlier in the week.
US Stocks Buck the Trend
US stocks have been an exception, extending gains on speculation that the new administration will be supportive of the nation’s companies. Bitcoin has also held steady since surging to a record thanks to Trump’s pro-crypto stance.
Trades May Regain Momentum
If the Republicans maintain control of the US House, the resulting sweep could smooth the path for Trump’s tax cuts, immigration, and trade policies. This could reignite momentum for Trump Trades, according to RBC Capital Markets.
Equities Outlook
For stocks, the momentum remains bullish. US equities have hit fresh record highs, with small-cap stocks and regional banks surging. Investors expect these firms to thrive under a second Trump administration. However, the outlook for Asia is less clear, with China’s fiscal stimulus holding the key to equities’ performance.
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