Stocks Are Set to Rise, Dollar Falls as Trump Holds Back on Tariffs ‘Shock and Awe’

Donald Trump’s presidential inauguration speech and related events on Monday left notable topics unaddressed, influencing U.S. financial markets. Stocks appeared poised for gains, while the dollar and U.S. Treasury yields moved lower. Meanwhile, Bitcoin, which had surged past $109,000 earlier in the day, began retreating.

‍

During his speech, Trump pledged to “tariff and tax foreign countries to enrich our citizens” but refrained from reaffirming his earlier threats to impose heavy tariffs on imports from Mexico, Canada, and China.

‍

Specifically, he had previously suggested a 25% tariff on goods from Mexico and Canada and an additional 10% tariff on Chinese imports, but these were notably absent from his address.

‍

Most U.S. financial markets were closed on Monday in observance of Martin Luther King Jr. Day. However, U.S. stock-index futures rallied in overseas trading following a Wall Street Journal report that Trump would sign a memorandum to review trade policies without immediately imposing new tariffs. This news provided relief to investors concerned about potential market shocks from Trump’s second term.

‍

Ed Yardeni, president of Yardeni Research, noted, “There might not be much of a shock-and-awe effect on the markets from Trump 2.0 initially since most of it has been discussed by Trump during his campaign speeches.” He added that market attention might shift to Federal Reserve policy and corporate earnings reports, both of which had supported bullish sentiment last week.

‍

Federal Reserve Governor Christopher Waller hinted last week at the possibility of multiple interest rate cuts in 2025. This, combined with a cooler-than-expected December core consumer price index, contributed to a decline in Treasury yields. The yield on the 10-year note, which had reached a 14-month high above 4.80%, fell to around 4.6% by the end of the week.

‍

Lower yields, which move inversely to bond prices, provided a boost to equities, with the Dow Jones Industrial Average and S&P 500 achieving their strongest weekly performances since early November.

‍

Late Monday, Dow futures were up 231 points (0.5%), while S&P 500 and Nasdaq-100 futures also gained 0.5%. Treasury yields declined further, with the 10-year note dropping 4 basis points to 4.571%. The ICE U.S. Dollar Index, which measures the dollar against six major currencies, fell 1.2% after reaching its highest level since November 2022 last week.

‍

Treasury yields are expected to remain a key factor in market movements as investors analyze a series of executive orders and policy announcements anticipated in the coming days. The significant rise in yields since last fall has been driven by concerns over the growing U.S. fiscal deficit. Despite Trump’s promises to reduce spending, some investors fear his administration may expand the deficit and introduce tariffs that could stoke inflation.

‍

Bitcoin, which hit a record high of over $109,000 early Monday, fell back below $102,000 by the evening. Cryptocurrency markets had been rallying on expectations that Trump’s policies would favor digital assets. Over the weekend, Trump launched a memecoin, followed by a coin celebrating his wife, Melania, sparking a frenzy of trading activity.

‍

Eoin Treacy of Fuller Treacy Money highlighted the impact of Trump’s involvement in the crypto space, stating, “President Trump has been dabbling in altcoins and so is the first lady. The clear verbal support for the sector and efforts to grant the crypto sector legitimacy have been clear supports for the price until today.”

‍

However, Bitcoin’s absence from Trump’s inauguration speech surprised some traders, leading to a pullback in its price. Treacy noted that the lack of explicit mention allowed Bitcoin to drift back into its previous trading range.

‍

The broader cryptocurrency market remains closely tied to expectations surrounding Trump’s policies and his administration’s approach to digital assets. While initial optimism has driven prices higher, the absence of further clarity in his inaugural address left traders uncertain about the administration’s long-term impact on the crypto sector.

‍

Overall, Trump’s inauguration speech, while notable for its omissions, shaped market sentiment by tempering fears of immediate aggressive trade actions. With attention turning to Federal Reserve policy, corporate earnings, and potential fiscal decisions, financial markets may experience a more measured response to Trump’s second term than initially anticipated. Meanwhile, cryptocurrency markets will likely continue to react to the evolving narrative surrounding Trump’s involvement and policy stance.

‍