(Bloomberg) -- Week one of the Trump administration was, as advertised, full of excitement in financial markets — just not the kind of excitement most investors had anticipated.
The Trump trades that became so popular during the campaign last year — load up on US stocks and the dollar, go light on international stocks and bet against Treasuries — only fared OK. US stocks jumped, sure, but not as much as they did in Japan and Germany or even parts of emerging markets. The dollar tumbled and the Treasury bond market was calm all week, with most yields quietly grinding lower.
President Donald Trump conducted plenty of business in his first week in office, signing executive order after executive order, holding impromptu press conferences, mugging for the camera, crisscrossing the country, but it was the one thing he failed to do — immediately slap tariffs on US trade partners — that triggered the surprising market response.
This had been a pledge he made throughout the campaign and it was a major piece of the Trump trade thesis: Punitive tariffs, as high as 60% on China, would hurt rival economies far more than the US, sinking their currencies against the dollar and rekindling inflation everywhere. It was the market interpretation of America First. For at least one week, though, it was America Last.
“A bias towards US assets quickly became the consensus position following the election, but with no new tariff announcements in Trump’s first week, we’re seeing sentiment improve around international equities and currencies,” said Adam Phillips, managing director of investments at EP Wealth Advisors. “America First trade took a breather this week.”
To be clear, US stock gains were robust. The 1.7% advance in the S&P 500 was the best start to a presidential term since Ronald Reagan in 1985. Yet the gains just weren’t all that eye-catching in a market that’s been on a tear for the better part of two years nor, more importantly, when compared to the rallies seen elsewhere. Stocks climbed some 2.4% in Germany, 3.9% in Japan and around 5% in Mexico.
Underneath the surface of the broad market gauges, winners and losers of the new era stood out. Oracle Corp., a major player in a Trump-backed $100 billion AI joint venture, soared 14%, the most in four months. Space stocks jumped on Trump’s promise to land American astronauts on Mars while Tesla Inc. dropped after he told his administration to consider removing subsidies for the electronic vehicle industry.
As Trump tempered his rhetoric on tariffs, the dollar weakened against major currencies. By one measure, the greenback looked poised for the largest weekly slide since November 2023, marking the worst performance at the onset of a presidential term since at least the 1970s.
Emerging-market currencies were among the biggest gainers against the dollar, with the Colombian peso, Hungarian forint and Polish zloty all advancing more than 3%. The bet: the White House will deploy trade threats principally as a negotiating tool, at least for now, to extract concessions out of countries.
US Treasuries were a rare quiet corner in markets. After getting lashed in recent weeks on concern the new administration’s agenda will swell government borrowing and stoke inflation, bonds eked out the smallest of gains. The yield on 10-year notes was little changed from a week ago, marking the smallest move since September.
Of course, everything under Trump can famously change as fast as he can hack out a tweet. The sweep of the administration’s agenda — lower taxes, large-scale deregulation, immigration crackdowns and more — adds an extra layer of uncertainty for the inflation-obsessed market. And the competing goals inherent in the agenda are causing confusion for investors. A mass deportation of undocumented immigrants, for instance, would clash with goals to juice economic growth without fueling inflation.
“You still have the conundrum of how you triangulate all that Trump wants,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “You want lower inflation but you want tariffs – how do you pull that together? You want a weaker dollar but you want tariffs. It’s going to be really hard to get all three of those at once and the market is waiting still to see which one prevails.”
While volatility broadly subsided in stocks and bonds during the first week, a slew of assets did whipsaw on Trump’s pronouncements, from the dollar to commodities. Crude prices instantly dropped Thursday, after Trump jawboned the market lower, telling world leaders gathered in Davos, Switzerland, that he would ask Saudi Arabia and other OPEC nations to “bring down the cost of oil.”
Yet while it’s tempting to cite the White House as a driver of market moves, even bigger forces are at play. Not least is a US economy that refuses to slow down while corporate earnings are again beating analyst estimates.
Still, if Trump’s first term is any guide, reading too much into the early days of his presidency is a mistake. Back in 2017, Treasuries fell while American stocks trailed their overseas counterparts at the onset, only to be reversed by the end of his tenure. Trump may yet spur a fresh rout next week, when more executive orders arrive in an already jam-packed trading period between the Federal Reserve policy gathering and the Big Tech earnings season.
But if anything can be said about the first few trading sessions, it’s this: Investors are betting their tax-cutting commander-in-chief will be a friend to Corporate America and, perhaps, less of an enemy to overseas companies than they envisioned.
David Lefkowitz, head of US equities at UBS Global Wealth Management, notes that Trump won the election last year in large part because Americans felt burned by the inflation spike that hit shortly after the Biden administration took office. That’s making the president wary of imposing tariffs, he wrote in a note. “Policies that further stoke higher prices will not be politically popular.”
