By With Donald Trump embarking on his second term, he could unleash a policy sea change as soon as he takes oath.
Reports suggest that at least 100 executive orders are ready for signing on Trump’s first day in office, touching on areas that could grab the market’s attention.
Though the holiday weekend will keep the stock and bond markets closed during the president-elect’s inauguration on Monday, investors will monitor how Trump reshapes trade, regulation, and immigration policy on day one.
Detailed below are three themes they should keep an eye on, and the market moves that could result:
Tariffs
Protectionism become the cornerstone of Trump’s campaign, and he has not backed down on tariff threats since winning the election.
To smooth out presumed trade imbalances, Trump has pledged a sweeping tariff strategy on all US trade, announcing plans for a universal tariff between 10% to 20%. He’s also promised that duty rates on Chinese products would rise as much as 60%, and he’s called for 25% import tariffs on Mexico and Canada.
For stock investors, that’s created some anxiety, given side-effect risks such as a higher dollar, inflation, and slashed foreign sales of US goods. Though some equities are more exposed than others, overall, S&P 500 earnings are likely to suffer, Barclays estimated last year.
In a Friday note, Morgan Stanley suggested that executive orders will focus on “fast announcements and slow implementation,” meaning that Trump is likely to set ambitious tariff goals that provide a ramp-up period for traders to adjust. On day one, investors should expect incremental tariffs hikes to kick off on China, made possible by existing presidential authorities.
However, a bigger market risk would come if Trump pursues fast implementation instead. If executive orders surprise the market in this way, the bank expects short-term Treasury yields to jump and the US dollar to appreciate, especially against the yuan, Canadian dollar, and Mexican peso.
“At present, market prices already reflect some probability of this type of more aggressive tariff outcome. If the more accelerated outcome occurs, market prices will have to more fully adjust to the unexpected reality,” bank analysts wrote. “If instead the outcome falls in line with our expectations, we would expect prices to affirm our market views.”
Regulation, from energy to crypto
For some on Wall Street, Trump’s name has become synonymous with deregulation policy, and the president-elect will likely abide by that when entering the White House.
Executive orders will shine a particularly strong spotlight on the financials and energy. For the former, Trump would likely start by overturning tighter regulation that was recently issued by the Biden administration. Bank stocks soared after Trump’s election on hope that he will loosen oversight.
US energy producers stand to benefit if Trump turns his “drill, baby, drill” mantra into action on day one. He could end oil and gas leasing restrictions on federal lands, lift a pause on liquified natural gas exports, and target green economy regulation from that spawned under Biden.
It’s to be seen how this translates into long-term investment gains, with global headwinds set to weigh on energy supplies this year. Still, alongside banks, energy stocks have gained ahead of the inauguration.
Meanwhile, new media report suggested that Trump plans to authorize crypto as a policy priority through executive action, a move that could come as soon as his first day. Though the details are still under discussion, this could sweep aside a regulatory overhang burdening crypto, halting government litigation against industry and pushing federal agencies to work with it.
The order could even establish a national bitcoin stockpile, an idea cheered by crypto investors since the election. This way, the US would hold on to its treasure trove of bitcoin — worth over $20 billion — as a hedge against inflation and US debt.
Crypto has rallied aggressively in the final stretch of 2024 as excitement mounted over Trump’s pro-crypto attitude. Though some analysts have warned that market bulls may face disappointment if policy is not implemented quickly, this executive order could help dissolve those fears and take crypto prices higher.
Immigration
A sizable portion of Trump’s executive orders on Monday are expected to target immigration policy, with most focused on tightening Southern border policy.
Though Trump has also pledged to carry out the largest deportation in US history as soon as possible, this is more likely to be challenged. According to Morgan Stanley, this is less feasible in the near term, and would require an act of Congress.
Depending on how disruptive the policies are to underlying industries, this could eventually come matter for markets — some have been warning that the consequences will be felt.
