Although the inauguration is not the place for the new president to showcase detailed policies, "the market will pay for what it sees."
Trump will be sworn in at 12 AM Beijing time on Tuesday, beginning his second term as President of the USA.
During the campaign, Donald Trump made countless policy promises to win over voters - including immigration, international trade, and even$Bitcoin (BTC.CC)$However, one of the most important issues for voters, and possibly the reason he won the election, is the economy.
Now Trump must fulfill these promises, and his voters will not be the only ones watching these policies; the entire Wall Street is closely watching.
Craig Sterling, head of USA Stocks research at Amundi U.S., said regarding Trump's upcoming policies, 'I think it hasn't been digested yet.'
He pointed out that there is much uncertainty surrounding the details of Trump’s policies, which makes it difficult for the market to reflect the impact of these policies on current stock valuations. Or, as Sterling said, 'The market will pay for what it sees.'
According to Dow Jones market data, the Dow rose 3.7% in the week before Donald Trump's inauguration.$S&P 500 Index (.SPX.US)$It rose by 2.9%, while the Nasdaq increased by 2.5%. Since the election day last November, $Dow Jones Industrial Average (.DJI.US)$ the S&P 500 Index and the other had increases of 3% and 3.7%, respectively, marking the weakest performance of these two indices between election day and inauguration day since Barack Obama's inauguration during the global financial crisis in 2009.

Reports indicate that Trump plans to take immediate action, preparing around 100 executive orders for his inauguration, at which point investors may quickly receive clearer information. In this scenario, the three policy areas investors will focus on primarily are: import tariffs, deregulation, and corporate tax cuts.
Import tariffs.
Tariffs have been one of the most关注的 policies during Trump's second term. In addition to labeling himself as the "tariff man," Trump informally proposed a 25% tariff on all products from Mexico and Canada, along with an additional 10% tariff on goods from China.
By imposing new tariffs, especially on trade partners such as Mexico and Canada, Trump could spark trade friction, which would increase costs for USA companies.
According to a recent report by the Boston Consulting Group, tariffs on goods from China, Mexico, Canada, and other countries could increase the import costs for the USA by $640 billion from major trading partners.
Companies and industries that rely heavily on imports from the affected countries will feel the rising costs more acutely. The Boston Consulting Group cites Auto Manufacturers, Auto Parts manufacturers, Outfits companies, and Consumer Electronics manufacturers as examples.
However, just because a company doesn't deal with imported goods that are subject to tariffs doesn’t necessarily mean it is safe. Some investors have been concerned that additional tariffs could lead to inflation. As the Federal Reserve successfully brought down inflation after the COVID-19 pandemic in 2020, investors are particularly sensitive to any factors that could drive inflation up again.
"This will be a big deal," said Mike Dickson, head of research at Horizon Investments. "I believe that some of the concerns and risks surrounding tariff policies have, to some extent, intensified worries and risks related to inflation. As a result, we have seen upward pressure on interest rates."
In recent months, the market has reacted strongly to news regarding inflation and interest rate cuts. For instance, the stock market experienced a significant sell-off after the Federal Reserve issued a hawkish statement on interest rates on December 18 last year, followed by a rise in the stock market after the January 15 CPI inflation data came in better than expected.
According to reports, Trump's advisory team is considering the idea of gradually raising tariffs to avoid a sharp spike in inflation. However, before the impact of Trump's tariff policy on inflation is clear, investors will be looking for more clues.
Deregulation
In December of last year, Trump stated he wanted to eliminate ten old regulations for every new regulation passed. While it is not yet clear which regulations will be eliminated, U.S. Chamber of Commerce President and CEO Suzanne P. Clark has stated that reducing regulation will unleash the "animal spirits" of the economy.
The financial industry is expected to be a major beneficiary of deregulation. The Wall Street Journal reported that Trump's advisors are seeking to shrink or limit the influence of bank regulatory agencies. JPMorgan CEO Jamie Dimon stated that Trump's deregulatory plans have excited bankers, as this could lead to a reduction in lending regulations for banks—lending is a key part of the banking business.
After Trump won the election, stocks in the financial sector surged, with the S&P 500 Financial Sector Index rising nearly 6.2% on November 6 of last year. Financial stocks continued to rise in the following weeks, stabilizing around the levels near November 6 before the inauguration.
But the financial industry is not the only one that can benefit from regulatory loosening. Certain companies in the energy sector as well as materials and industrial sectors may benefit from more relaxed environmental regulations.
Sterling pointed out that after the COVID-19 pandemic, American manufacturers have been dealing with a growing long-term slowdown, but as the "regulatory pendulum swings in the other direction," future growth could be boosted.
Corporate tax cuts
In 2017, Trump and the Congress led by the Republican Party passed a comprehensive tax bill, part of which will expire in 2025. It is expected that Trump will extend these tax reduction plans after taking office.
The 2017 tax bill lowered the corporate tax rate to 21%, but Trump has since proposed lowering it to 15%. Lowering costs and increasing profit margins will benefit any business, so investors may be excited about the potential business tailwinds.
"The incoming government may prioritize domestic growth through policies such as tax cuts, targeted fiscal stimulus, and deregulation," said Jonathan Coleman, a portfolio manager for the CNI Small Cap.Growth Index at Janus Henderson Investors, in a report. "These approaches can support small-cap stocks, as they are more economically sensitive than large-cap stocks. We anticipate that, given the relative ease of earnings, the earnings growth of small-cap stocks may surpass that of large-cap stocks by 2025."
While it may take time for companies to feel the impact of tax cuts, official announcements regarding tax policies may stimulate bullish sentiment among investors.
Looking ahead to Trump's inauguration.
Trump will deliver his first speech of his second term on Inauguration Day. While there are many topics to discuss, investors may not find the answers they are looking for that day.
"Will Trump provide any real clues about his policy agenda? Probably not," said Steven Barrow, head of G10 strategy at Standard Bank, in a report. "If this speech resembles his inauguration speech in 2017, it would be exaggerated but lack details. This is not surprising. Inaugurations are not venues for new presidents to showcase their policy details."
Even if Trump announces policies in the first week of his presidency, these policies may not have a direct or dramatic impact on the economy.
The reality is: the USA economy is not a speedboat, but a huge super tanker. Even with the most aggressive policy changes, it takes time to turn the situation around," said Adrian Helfert, Chief Investment Officer of Westwood Holdings.
Nonetheless, investors often pay attention to Trump's remarks, as many questions remain unanswered with the arrival of his second term, and any change may trigger significant reactions in the short term.
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