What Trump 2.0 means for the markets

Since returning to the White House on 20 January last, President Trump has issued a blizzard of shock announcements. François Chorand, CFA, decodes their impact on the financial markets.

Why have Donald Trump's decisions since his return to the Oval Office shaken up the markets?

When Trump was reelected, many investors expected a remake of his first term – pro-growth policies with tax cuts and less regulation, all in a generally protectionist approach.

This means investors had already priced in these expectations to their decisions as they bet on sustained economic growth and a favourable climate for US companies. But at breakneck speed, within a few days of his inauguration President Trump went far beyond the expected policy shifts. He took far more radical decisions, often without warning, sending shockwaves through markets and stoking uncertainty.

For example, he has reignited a brutal trade war with China. The steep hike in tariffs to almost 150% effectively creates an embargo on trade with the US’s competitor.

Staying with trade, Trump has threatened to walk away from multilateral agreements with partners around the world and has put pressure on longtime allies, like the European Union and Japan.

His often violent verbal onslaught on the President of the Federal Reserve demanding that the US central bank drop interest rates faster was also seen as a threat to the Fed’s independence to set monetary policy. The Fed’s independence matters to markets. It is a guarantee of stability and responsible management of inflation

Key takeaways

Financial markets hate uncertainty. General instability during Trump’s first 100 days has worried investors. They weren’t surprised by the President’s playbook in general, but by the sheer force, brutality and unilateral nature of his actions.

The disconnect between investor expectations at end-2024 and reality has stoked volatility and rattled investors.