(Bloomberg) — Donald Trump’s victory in November’s U.S. presidential election sparked an immediate rally in markets, sending stocks soaring, the dollar surging and bitcoin off the charts. But just two months later, the Republican is ready to return to the White House, and only a few of these trades.
The reversal was first seen in the stock market, with the S&P 500 index fully reversing the “Trump bump” as investors began to question what the Federal Reserve’s expected rate cut and the new administration’s policy proposals would mean for stock prices. . The Treasury yield curve has risen sharply since late November after initially flattening. Meanwhile, Bitcoin and the dollar held their gains.
But the real test of these bets will come now, as Trump takes office. Tariffs are the biggest threat and have raised concerns that the administration’s plans could lead to longer and more unpredictable trade wars than during his first term as president. Wall Street experts worry about how any moves on immigration will affect the U.S. economy. And they fear heightened geopolitical tensions with Trump targeting some of America’s traditional allies, such as Canada, Mexico and Europe.
“Forecasting is a polite way of saying guesswork, but we have to make guesses about these policies because they affect the outlook for the economy,” Citigroup chief U.S. economist Andrew Hollenhorst said on the 2025 forecast call.
Here’s a look at the assets and sectors traders will be watching as new management takes over.
The initial rush of Trump euphoria was quickly reflected in some battered corners of the stock market, such as small capitalization companies. The Russell 2000 index jumped 5.8% the day after the election for a session best. The logic was simple: the incoming administration’s protectionist trade policies would greatly help the group that generates most of its income at home.
But the enthusiasm quickly faded. The index rose 8 percent from Nov. 5 to Nov. 25, and then continued to give back most of the gains in the following weeks.
“Many of these stocks are marginally profitable or not profitable at all, depending on funding to stay afloat, and higher rates hurt that narrative,” said Steve Sosnick, chief strategist at Interactive Brokers.
Bank stocks suffered their own post-election upset as Trump promised to ease regulations on lenders. The KBW Bank index jumped 14% from Nov. 5 to Nov. 25, hitting a 52-week high. But then it lost momentum, retreating 1.8% through Friday.
Shares of energy companies also made a post-election bid based on Trump’s “drill-baby-drill” stance on oil and gas production. The S&P 500 energy index rose 3.5% for its best session in a year on Nov. 6 and rose 6.5% from Election Day to Nov. 22. But it has been on a roll since then, losing 3.2% on supply fears. , tariffs and economic growth.
The most well-managed stock market transactions are in areas where investors have relative transparency. Stocks related to cryptocurrencies maintained their gains. And then there’s Tesla Inc. The electric vehicle maker’s stock rose 70% after Trump’s victory, even though the incoming president is a well-known EV skeptic. The thesis is that Elon Musk’s closeness to the administration will help the company’s interest in building fully self-driving cars.
“I haven’t done anything but crypto and Tesla since the post-election trade,” Sosnik said.
Currencies
Perhaps the purest expression of Trump’s pre-election trade was to be long the dollar based on inflationary expectations of pacific tariffs and the Trump administration’s loose fiscal policy.
Bloomberg’s measure of greenbacks is up 5% in the 10 weeks since Election Day, similar to the gain posted after Trump’s 2016 victory. Underpinning the move is a similar weakness to global currencies that are considered at risk from Trump’s economic policies, including the euro and Canadian dollar.
Wall Street largely saw this coming. Analysts at JPMorgan Chase & Co., led by Meera Chandan, predicted the euro could weaken to parity if Trump wins, while Barclays Capital FX strategist Skylar Montgomery Koning said the loonie could fall to pandemic-era lows. Chandan and her team now expect the euro to trade below earnings this quarter.
“I think the rates haven’t been fully paid yet,” Chandan, head of global FX strategy at JPMorgan, said on a recent podcast.
Most emerging market currencies weakened in the wake of Trump’s victory. The MSCI benchmark has fallen 2.2% since election day, with the South African rand and European currencies leading the decline.
The Mexican peso, traders’ favorite currency to compete in the lead-up to the election, weakened 3.4% against the greenback after the election, better than most of its 31 major peers tracked by Bloomberg. The peso’s relative resilience comes as traders push back the Fed’s rate cut schedule, which will also make Mexican policymakers more cautious, they say.
China’s yuan, meanwhile, has lost more than 3 percent against the dollar in both onshore and offshore trading since Nov. 5, amid a widening gap between U.S. and Chinese government bond yields on tariff concerns. The People’s Bank of China has deployed a range of tools to support the currency, and expectations of a rate cut have eased since peaking in early December.
Rates
A Trump victory, not to mention a Republican election, is expected to push the yield curve higher, based on policy proposals weighing on inflation and long-term US debt. And with the gap between 10-year and two-year Treasury yields widening to 34 basis points, near the steepest since early 2022, longer-dated Treasuries have fallen since Trump. Graduation.
“We’re starting to see steepening curves,” said Neil Sutherland, portfolio manager at Schroder Investment Management. “The Fed cutting a hundred basis points and getting long yields tells you a lot about what’s going on in the market.”
Lackluster US economic data and uncertainty surrounding Trump’s policies also weighed on short-end rates. Swap traders are pricing in less than two quarter points of the Fed’s interest rate cut this year. Before the election, they expected about six cuts.
Still, the only certainty in the market is uncertainty. Price traders got a chance to watch last week as monthly core inflation sent Treasury yields into the curve with a softer-than-expected reading.
“Sentiment is very negative in the Treasury market at the moment, there is a risk that yields could actually go down,” Sutherland said.
Crypto
Trump, a cryptocurrency skeptic who once said Bitcoin “looks like a scam,” has done a complete reversal and now has massive support from the crypto business. He plans to issue an executive order that would make crypto a policy priority and give industry insiders a voice in the administration, Bloomberg reported, citing people familiar with the plan. In addition, it is expected to simplify regulation and create a systematic storage of bitcoins.
Naturally, crypto assets rose from the election, with Bitcoin reaching a record in mid-December and gaining some 50% of its value on November 5. The Bloomberg Galaxy Crypto Index jumped 11% the day after the vote and added another. 29% since then
–With assistance from Maria Elena Vizcaino and George Leigh.
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