(Bloomberg) — The first week of the Trump administration has been, as advertised, full of excitement in financial markets — just not the kind of excitement most investors were predicting.
Most reading from Bloomberg
The Trump trades that became so popular during the campaign last year — loading up on U.S. stocks and the dollar, lighting up international stocks and betting against Treasuries — are just fine. US stocks jumped, sure, but not as much as in Japan and Germany or even parts of emerging markets. The dollar fell and the Treasury bond market was quiet all week, with most yields quietly grinding lower.
President Donald Trump has handled plenty of work in his first week in office, signing executive order after executive order, holding impromptu press conferences, milking the camera, covering the country, but there was one thing he failed to do — immediately slapping tariffs on U.S. trading partners – which triggered a surprising response in the market.
This was a promise he made throughout the campaign, and it was a major part of Trump’s 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 reviving inflation everywhere. First it was the market interpretation of America. For at least a week, however, it was the last America.
“US asset bias quickly became the consensus position after the election, but with no new tariff announcements in Trump’s first week, we see sentiment improving around international equities and currencies,” said Adam Phillips, managing director of investments at EP Wealth Advisors. “First Store America took a breath this week.”
To be clear, US inventory gains have been strong. The S&P 500’s 1.7% advance was the best start to a presidential term since Ronald Reagan in 1985. Still, the gains weren’t all that appealing in a market that has been on a tear for the better part of two years or, more importantly, compared to rallies seen elsewhere. Stocks rose about 2.4% in Germany, 3.9% in Japan and about 5% in Mexico.
Beneath the surface of broad market gauges, the winners and losers of the new era have stood out. Oracle Corp., a major player in the $100 billion AI joint venture, rose 14%, the most in four months. Space stocks jumped on Trump’s promise to land American astronauts on Mars, while Tesla Inc. fell after he told his administration to consider removing subsidies for the electronic vehicle industry.
As Trump softened his rhetoric on tariffs, the dollar weakened against major currencies. By one measure, the greenback looked poised for its biggest weekly slide since November 2023, marking the worst performance at the start of a presidential term since at least the 1970s.
Emerging currencies were among the biggest gainers against the dollar, with the Colombian peso, Hungarian fonint and Polish zloty all advancing more than 3%. Bet: The White House will, at least for now, deploy trade threats as a negotiating tool to extract concessions from countries.
American treasuries were a rare quiet corner in the markets. After rumbling in recent weeks on worries the new administration’s agenda will swell government borrowing and inflation, bonds have carved out the smallest gains. The yield on the 10-year note was little changed from a week ago, marking the smallest move since September.
Of course, everything under Trump can famously change as quickly as a hack can tweet. The administration’s sweeping agenda—lower taxes, sweeping deregulation, immigration crackdowns and more—adds an extra layer of uncertainty to an inflation-obsessed market. And the competitive goals inherent in the agenda cause confusion for investors. For example, mass deportation of undocumented immigrants would conflict with goals to juice economic growth without fueling inflation.
“You still have the puzzle of how you triangulate everything 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 off? You want a weaker dollar, but you want tariffs. It’s going to be really hard to get all three at once, and the market is still waiting to see which one prevails.”
While volatility broadly dampened stocks and bonds during the first week, a range of assets made a whipsaw on Trump’s excuses, from the dollar to commodities. Crude oil prices immediately fell on Thursday after Trump sent the market lower, saying world leaders gathered in Davos, Switzerland, would ask Saudi Arabia and other OPEC nations to “bring down the cost of oil.”
And yet, while it’s tempting to cite the White House as the driver of market moves, there are even bigger forces. Not the least is the US economy, which refuses to slow down as corporate earnings beat analysts’ estimates again.
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, the box office fell, while US stocks initially lagged their foreign counterparts, only to reverse by the end of their tenure. Trump may still push for a fresh route next week, when more executive orders arrive in an already crowded trading period between the Federal Reserve’s 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 that their tax-cutting commander will be a friend of corporate America and, perhaps, less of an enemy of foreign companies than they imagined.
David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, notes that Trump won most of last year’s election because Americans felt burned by the inflationary spike that hit shortly after the Biden administration took office. This is why the president is wary of imposing tariffs, he wrote in a note. “Policies that further extract higher prices will not be politically popular.”
