Stock Market Show Relative Initial Calm After Trump Inauguration
Following the inauguration of Donald Trump and the observance of Martin Luther King Jr. Day, U.S. stock markets resumed activity with a positive tone, as the S&P 500 advanced 0.4% at the start of the session. This initial optimism is supported by the relative calm that followed the first day of operations under the new administration.
Although the president reiterated his intention to reform the trade system to “protect Americans” and threatened tariffs and duties on foreign countries, later making specific references to Mexico and Canada with a potential 25% tariff starting in February, the absence of concrete measures created a sense of tranquility in the markets. This lack of immediate action, contrasting with prior rhetoric, has been a key factor for stabilization.
The initial moderation in implementing trade measures, compared to the campaign tone, has injected caution and optimism into the markets. This pause allows investors to carefully assess future economic directives.
This respite is also reflected in the fixed-income market. Yields on the U.S. 10-year Treasury bond have declined, dropping below the 4.6% threshold after hitting a multi-year high of 4.8% on January 14. This decline in yields supports risk-taking in other assets, fueling optimism in the equity market.
However, it is crucial to remain cautious. While the absence of drastic initial measures has calmed markets, uncertainties surrounding trade policies are likely to resurface in the future. Potential trade moves and their impact on inflation remain a risk factor to closely monitor.
It is too early to celebrate a definitive victory on the trade front. Tensions are highly likely to reignite and generate market volatility. The key will be to observe the evolution of negotiations and the actual implementation of announced policies.
Looking ahead, attention will begin to shift to the upcoming Federal Open Market Committee (FOMC) meeting. Investors will be particularly attentive to any indications providing clarity on the stance of the Federal Reserve (Fed), especially following the economic optimism that characterized the early weeks of January. Recent inflationary economic data, such as the Producer Price Index (PPI) and the Core Consumer Price Index (CPI), which showed positive surprises, have helped to relatively moderate expectations for a more restrictive monetary policy.
The FOMC meeting will be crucial to understanding the Fed’s view on the current state of the economy and its future outlook. Any signals regarding the direction of interest rates, as is customary, will have a significant impact on the markets.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Although the president reiterated his intention to reform the trade system to “protect Americans” and threatened tariffs and duties on foreign countries, later making specific references to Mexico and Canada with a potential 25% tariff starting in February, the absence of concrete measures created a sense of tranquility in the markets. This lack of immediate action, contrasting with prior rhetoric, has been a key factor for stabilization.
The initial moderation in implementing trade measures, compared to the campaign tone, has injected caution and optimism into the markets. This pause allows investors to carefully assess future economic directives.
This respite is also reflected in the fixed-income market. Yields on the U.S. 10-year Treasury bond have declined, dropping below the 4.6% threshold after hitting a multi-year high of 4.8% on January 14. This decline in yields supports risk-taking in other assets, fueling optimism in the equity market.
However, it is crucial to remain cautious. While the absence of drastic initial measures has calmed markets, uncertainties surrounding trade policies are likely to resurface in the future. Potential trade moves and their impact on inflation remain a risk factor to closely monitor.
It is too early to celebrate a definitive victory on the trade front. Tensions are highly likely to reignite and generate market volatility. The key will be to observe the evolution of negotiations and the actual implementation of announced policies.
Looking ahead, attention will begin to shift to the upcoming Federal Open Market Committee (FOMC) meeting. Investors will be particularly attentive to any indications providing clarity on the stance of the Federal Reserve (Fed), especially following the economic optimism that characterized the early weeks of January. Recent inflationary economic data, such as the Producer Price Index (PPI) and the Core Consumer Price Index (CPI), which showed positive surprises, have helped to relatively moderate expectations for a more restrictive monetary policy.
The FOMC meeting will be crucial to understanding the Fed’s view on the current state of the economy and its future outlook. Any signals regarding the direction of interest rates, as is customary, will have a significant impact on the markets.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
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