Stocks climbed as President Donald Trump struck a better-than-feared tone on trade and speculation grew that his policies will further boost Corporate America. Bonds continued to unwind the recent surge in yields. The dollar wavered.
More than 400 shares in the S&P 500 rose, with the gauge up almost 0.8% as Trump is expected to announce a new investment push for artificial intelligence led by Softbank Group Corp., OpenAI LLC, and Oracle Corp.
Small caps hit a one-month high on bets they will benefit from a protectionist stance.
Trump’s flurry of executive orders helped boost space shares, while weighing on some electric-vehicle makers like Tesla Inc. U.S.-listed Chinese stocks advanced as the new president so far refrained from announcing tariffs on the Asian nation.
Treasury yields approached their lowest levels of the year. Canada’s loonie and Mexico’s peso led losses in major currencies as Trump outlined levies he expects to place on both countries by Feb. 1. Oil and industrial metals declined as the greenback makes most commodities priced in the currency less appealing.
“Risky assets should benefit from deregulation and tariffs emerging as not so bad as feared,” said Mohit Kumar at Jefferies International Ltd. “For rates, less onerous tariffs and likely lower oil prices should be a positive. We do admit that there would be an additional element of volatility.”
Callie Cox at Ritholtz Wealth Management, says it’s time to see what speculation was “founded” and what was “just nonsense” when it comes to tariffs. Meantime, she noted that Trump faces a crucial test on another front.
“We’ll start seeing more headlines around debt-ceiling talks, and possibly, more stress on the shorter end of the Treasury curve,” she said.
The debt ceiling is frequently used for leverage amid budget negotiations in Congress, with agreements often made at the last minute. As a result, the standoffs typically ripple through short-term interest rates as investors dump Treasury bills most vulnerable to a potential default in favor of other securities.
The S&P 500 rose 0.7%. The Nasdaq 100 added 0.5%. The Dow Jones Industrial Average climbed 1%. The Russell 2000 of small caps rallied 1.7%. A gauge of the “Magnificent Seven” megacaps gained 0.3%.
The yield on 10-year Treasurys declined five basis points to 4.58%. The Bloomberg Dollar Spot Index was little changed.
“Last week, the equity markets experienced a broad rally, supported by cooler inflation data, upbeat earnings from banks, and a recovery from short-term oversold conditions and negative sentiment,” said Craig Johnson at Piper Sandler. “We expect further upside in equities, supported by the return of Trump’s ‘business and investor-friendly’ policies.
The “presidential scorecard” of stock-market performance is resetting this Tuesday, with Trump beginning his day in the White House for the first time in four years.
For Joe Biden’s entire presidency, the Dow Jones Industrial average rallied 39.4% — about 18 percentage points less than the four years under Trump’s first administration — and over 100 percentage points less than the 149.4% during the eight years of the Obama era, according to data compiled by Bespoke Investment Group.
“While the Dow’s performance under Biden was the weakest of the last three presidents, it was still nothing to sneeze at, and it caps off a third straight period of strong gains under a presidential term,” Bespoke said. “Let these performance numbers serve as a reminder that as an investor you should never let your politics and investment decisions overlap.”
There are early signs that investors are preparing for equity laggards to rally on bets that Trump could take a softer-than-feared stance on global trade, according to a survey by Bank of America Corp.
If concerns around Trump’s tariff proposals prove to be “unfounded,” investor allocations would remain risk-on and stock markets that have trailed the powerful rally in the U.S. would play catch up, BofA strategist Michael Hartnett said.
In what could be a different macro/market regime in 2025, with a moderate pick-up in economic growth, we want to look for other equity markets that have reversion potential and have positive earnings revisions, according to Emily Roland and Matt Miskin at John Hancock Investment Management.
“U.S. large-cap value (financials heavy) and U.S. mid-caps (industrials heavy) are the two best options across globally equities that offer reversion potential and improving earnings trends,” they noted. “Non-U.S. equities and U.S. small-caps could get a boost simply from the rotation trends, but fundamentally not as strong.”
Roland and Miskin also added that investors don’t have to go far to benefit from the potential deconcentration of the S&P 500 from the top 10 mostly technology-driven growth stocks.
“Simply a value tilt or moving down in cap a bit, may give them plenty of fundamentally favorable opportunities,” they concluded.
“Our base case for the U.S. economy is for ‘growth despite tariffs’,” said Solita Marcelli at UBS Global Wealth Management. “While we will be closely monitoring for risks, we do not believe that the tariff measures outlined in our base case would be sufficient to derail U.S. growth. Nor do we believe that such tariffs would preclude inflation continuing to fall from current levels, enabling the Federal Reserve to cut rates by 50bps later this year.”
The latest dovish inflation readings are “game-changers,” and should provide a Goldilocks backdrop for risk assets over the coming months, HSBC says.
The bank’s strategists led by Max Kettner expect only very shallow drawdowns in the coming months and would use any dips to boost risk asset exposure. They say sentiment and positioning are still flashing a buy signal.
To Matt Maley at Miller Tabak, while many of the headlines related to Trump’s policies could have an important impact on the markets, earnings season — and forward guidance — should be extremely important as well.
“With the market as expensive as it is today, there are some concerns about whether the positive aspects of these new policies may have already been priced into the stock market,” Maley said. “So, it’s going to be particularly important that the overall earnings picture does not begin to deteriorate in any meaningful manner.”
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