By Suzanne McGee and Saeed Azhar
NEW YORK (Reuters) -Investors welcomed Donald Trump’s second inauguration on Monday, saying it heralded a pro-business agenda and that they were relieved that protectionist trade policies may be implemented more methodically than many had feared.
Trump enters office with an ambitious agenda spanning trade reform, immigration, tax cuts and deregulation which has the potential to boost U.S. corporate profits but which could also reignite inflation, pressuring stocks and bonds and forcing the Federal Reserve to increase borrowing rates.
In his inaugural speech on Monday, Trump pledged to bolster the U.S. oil, gas and power industries, to crack down on immigration and repeated his intention to collect “massive amounts” of tariffs. Investors, who are adjusting portfolios across asset classes, said they remain watchful, awaiting signs of how those initiatives will be implemented.
“Most of what he has been talking about will help spur growth and corporate profits,” said Jack Ablin, chief investment officer at Cresset Capital.
“But many will come at a cost. We will need to see a lot of earnings growth to make up for even a minor increase in interest rates that could follow higher tariffs” and other proposals, he said.
Despite talking up his planned tariffs, Trump stopped short of taking aggressive tariff action in his initial hours in office, which had been a key concern of many investors, sparking a relief rally in global stocks, while other major currencies rallied against the dollar. Instead, Trump will issue a broad trade memo on Monday that directs federal agencies to evaluate U.S. trade relations with China, Canada and Mexico.
“The biggest reaction is what appears to be the delay on the tariffs. Of all the proposals that are being put forward, that was the one that was most likely to affect the market,” said Rick Meckler, a partner at Cherry Lane Investments in New Jersey.
“When you say you’re going to study and try to negotiate it after you said that you will do it on Day One, I think that’s encouraging for the market.”
Stock futures traded higher following the inauguration, with contracts on the index up around 0.4% by late in the day, while the dollar fell and the peso gained slightly. U.S. exchanges were closed for trading in honor of the Martin Luther King Jr. holiday.
During his election campaign, Trump vowed to impose steep tariffs of 10% to 20% on global imports into the U.S. and 60% on goods from China, but investors said the signs on Monday were that the new administration would take a more measured approach.
“It is far too soon to declare that the worst of the tariff threat has passed. But certainly, Day One has gone much better for international trade than most had feared,” Chris Turner, global head of markets at ING, wrote in a note.
DEREGULATION PROMISE
Elsewhere in the market, Trump’s promise to ease regulation has lifted bank stocks and sent cryptocurrencies soaring.
As they reported surging profits, Wall Street CEOs told investors this month that the incoming U.S. administration would be business-friendly and good for banks.
The cryptocurrency industry expects Trump to fulfill his “crypto president” campaign promises by creating a federal bitcoin stockpile, providing crypto companies access to banking services, and creating a crypto council, Reuters previously reported.
Trump also launched a branded cryptocurrency which soared on Monday to more than $8 billion in market value, raising ethics questions.
In the aftermath of Trump’s Monday speech, the price of bitcoin remained below its overnight high of $107,000, at about $104,000, as the market anxiously awaited specific cryptocurrency announcements.
During the first year of Trump’s first administration, the S&P 500 rose 19.4%, following a 5% rally in his first 100 days in the Oval Office. During the entirety of Trump’s first term, the S&P 500 rose nearly 68%, but markets saw bouts of volatility, stemming in part from a trade war Trump fought with China.
Following Trump’s last inaugural address, in January 2017, the S&P 500 ended up 0.3% on the day. Due to the holiday, the trading reaction this time will not be evident until Tuesday.
Some investors said they were still in wait-and-see mode.
“The big question on investors’ minds right now is going to be ‘how’ — how will he cut costs and lower inflation and lower interest rates,” said Josh Strange, president of Good Life Financial Advisors of NoVA, a financial advisory firm.
