Markets have rallied as Donald Trump’s re-election sparks a resurgence in “Trump trades”.
Investors are piling into assets expected to benefit from his pro-growth, protectionist policies.
Here are some of the immediate reactions, and some likely flow-on effects.
Stocks
Traders are betting that Trump’s tariffs and tax cuts will favour companies with US-centric operations.
US stock futures have soared. As of the time of writing, the Dow Jones futures are up around 1,134 points, and the S&P 500 futures are up 129 points. The Nasdaq futures are up 376 points.
The Russell 2000 small caps index is up 1.88%.
Inflation
Many of Trump's fiscal policies are thought to result in increased inflation. Tariffs will increase the costs of imports. And immigration restrictions can reduce the supply of workers (especially in agriculture, construction, and service industries), potentially resulting in increased wages. Businesses will pass these costs on to the consumer, potentially impacting spending and growth.
Bonds
The “Trump trade” has also made waves in bond markets, where yields have jumped. The US 10-year Treasury yield is up around 4.4% or 13 basis points, marking its highest level since early July, while the 2-year yield, more sensitive to Fed rate changes, has gained around 4.3% or 5 basis points.
Luke Hickmore, investment director at Abrdn, commented, “People will realise inflation is going to rise as he pushes hard on the fiscal side. We might hit 5% on the US 10-year yield — maybe even this year.”
The increase in bond yields reflects investor expectations of higher inflation, increased government borrowing, and reduced likelihood of interest rate cuts by the Federal Reserve (which may in fact face pressure to raise rates).
US dollar
The US dollar has strengthened against a range of currencies, in particular the euro, yen and Mexican peso.
The US Dollar Index, which measures the US dollar against a basket of currencies, is up 1.46%. The broader Bloomberg Dollar Spot Index is up 1.48%.
Analysts attribute this, again, to Trump’s aggressive stance on trade and tariffs, and to inflationary effects. For instance, if the Fed raises interest rates to keep inflation in check, US investments become more attractive, drawing foreign investors who need US dollars to invest, increasing dollar demand.
However, a strong dollar also makes US goods more expensive for foreign buyers, reducing the competitiveness of American exports (which might also be hit with reciprocal tariffs), and will also affect companies with overseas
Cryptocurrency
Bitcoin has surged, briefly breaking US$75,000 before settling. At the time of writing, it's at US$73,535.41.
Trump is seen as supporting deregulating crypto markets, and as having a bullish stance on digital assets. In addition, Bitcoin is often seen as a hedge against inflation.
Other assets
Shares of Trump Media and Technology Group have skyrocketed, with premarket trading showing gains of up to 62%.
Tesla shares have also jumped 12% in premarket trading, while crypto-exposed companies like Coinbase and MicroStrategy have risen 12% and 13%, respectively.
