One of the main immediate effects that can arise in the markets upon the arrival of a new president is the volatility. Investors often react to uncertainty about future economic policies. In Trump’s case, this volatility was intensified due to his disruptive style and unconventional approach to economic issues, such as trade agreements and business regulations.
In the days before and after the inauguration, stock market indices such as S&P 5000 and the Dow Jones showed significant oscillations. While some sectors, such as energy and finance, reacted positively to promises of deregulation, others, such as technology and consumer goods, experienced declines due to fears over protectionist policies and potential trade conflicts. Many analysts predict that history will repeat itself.
Fiscal stimulus promises and their impact on markets
One of Trump’s most notable promises during his campaign has been implementing aggressive fiscal stimulus, including tax cuts for businesses and increased infrastructure spending. These measures have generated optimism among investors, who have anticipated accelerated economic growth under the new Republican administration.
The stock market reacted favorably to these prospects in some key sectors. The construction and materials companiesfor example, recorded significant gains on the possibility of an increase in public infrastructure projects. Likewise, promised tax cuts boosted the shares of large corporations, especially those with international operations that could repatriate profits at lower tax rates.
However, this optimism has been accompanied by concerns about the long-term impact of these measures on the fiscal deficit. Increased spending without a clear plan to offset it could lead to an increase in the US public debt. which would eventually affect bond markets and confidence in the US economy.
Trump has also marked his arrival to the presidency with a protectionist stance on international trade. His promise to renegotiate trade agreements like NAFTA (now USMCA) and his rhetoric about imposing tariffs on countries like China and Mexico have created tensions in global markets.
Emerging markets, particularly those dependent on trade with the United States, have experienced significant pressure. Currencies such as the Mexican peso and the Chinese yuan have suffered devaluations against the dollar, while the Foreign investors have come to reconsider their strategies in these regions due to increased geopolitical risk.
In contrast, some American companies see opportunities in this new trade policy with Trump’s return. Local manufacturing and goods industries have anticipated greater government support to boost domestic production, which briefly boosted its market values.
Changes in monetary policy
Trump’s presidency also raises questions about the monetary policy of the Federal Reserve (Fed). Although the Fed is an independent institution, Trump’s comments on interest rates and their influence in economic performance have generated some uncertainty in the markets.
In an environment where a gradual rise in rates is expected to control inflation, investors are attentive to how pressure from the administration can influence the central bank’s decisions. Any hint of conflict between the White House and the Fed has the potential to increase volatility in financial markets and affect investor confidence.
Winning and losing sectors
Trump’s arrival to power has created an uneven panorama in the financial markets, with sectors benefiting and others expecting to face even difficulties. Among the winners stand out the energy and natural resources sector with promises of deregulation and support for fossil fuels that will favor oil, gas and coal companies.
Also, the tax cuts and the possibility of reducing regulationslike those imposed by Dodd-Frank, are expected to boost banks and financial services companies.
On the other hand, some sectors that face doubts with the return of Donald Trump to power are the technologicaldue to strong trade tensions and the possibility of restrictions on the immigration of skilled workers that could affect growth prospects in this sector.
And, of course, the protectionist policies and possible tariffs to imports that increased costs for companies that depend on global supply chains.
The arrival of Donald Trump to the White House in 2017 had a significant impact on financial markets, marked by volatility, opportunities and risks. In 2024, these lessons remain relevant to understanding how changes in political leadership can influence global finance. Everything is still to be decided…