Financial Markets Reaction to Trump's Inauguration

Introduction 

As the 47th president, Donald Trump will take over the White House for the second time, after defeating Democratic candidate Kamala Harris in November of last year, a result that had affected various financial markets.

Following the announcement of Donald Trump's victory, stock markets experienced an average increase of 1.2% across the three major U.S. indices, with the S&P 500 reaching record highs.

This surge was driven by optimism surrounding Trump's proposed economic policies, which included tax cuts for corporations and measures aimed at protecting domestic industries, particularly through the implementation of tariffs on imports.

Cryptocurrency markets saw significant gains, with Bitcoin, the most well-known cryptocurrency, rising over 55% from the announcement of Trump's victory to the present.

This surge was fueled by Trump's pledges to position the U.S. as the global leader in cryptocurrency and to support the digital asset sector. 

Additionally, the cryptocurrency launched under his name saw a rapid increase, surpassing billions in value within hours and reaching a total market capitalization of over $5.7 billion in less than a day.

Meanwhile, gold fell by more than 3% on the first day of announcing Trump's victory, driven by fears that Trump's financial policies would cause inflation to rise again, forcing the Federal Reserve to keep interest rates high, which is not what the yellow metal wants, as it was primarily optimistic about the start of interest rate cuts in September 2024.

Financial Markets Reaction to Trump's Inauguration

First. Stock markets:

75 days after Trump's victory in his second term was announced, various markets are anticipating what Trump will do on the economic front that he promised during his election campaign.

However, what is different now will be his team, specifically the economic one, as most of his team members are billionaires and wealthy individuals, such as Howard Lutnick, Secretary of Commerce, and Scott Bessent, Secretary of the Treasury, whose wealth amounts to 3 billion US dollars.

This information may send a positive signal to the financial markets, through what these members can provide in support of Trump's idea of ​​tax cuts and support for companies during his term.

Second. Cryptocurrency Markets:

As for cryptocurrency markets, it is undeniable that Trump continues to support them, starting with his announcement during his election campaign, and what he did while appointing people, specifically in advisory positions, whom Trump said would work with David Sachs, the Czar of artificial intelligence and cryptocurrencies, who in turn would work to establish a legal framework that the crypto industry would enjoy, according to Trump.

In fact, the optimism about Trump's support in the cryptocurrency market reached the point where many cryptocurrency executives celebrated the first crypto inauguration ceremony in history two days before Trump's official inauguration on Monday, January 20.

Third. Metals and gold markets:

Gold remains one of the relatively mysterious files before Trump takes over, and it becomes clear how he will implement his economic promises, specifically foreign ones, which is still sending mixed signals to gold.

As it may carry in the early periods, specifically the first six to twelve months of his term, support for inflation to remain high in a way that forces the Federal Reserve to keep interest rates high with the possibility of reducing them to two cuts during 2025, which will be somewhat disappointing for gold.

While his protectionist and pro-corporate policy may carry support for stock markets in a way that may support them to pull the rug out from under gold, if stock markets continue to record record historical levels.

As for the clearly supportive signal for gold, it may be represented by the hostility that Trump's implementation of his policy may characterize, which may push markets to safe havens to hedge against any potential economic or geoeconomic turmoil, which may explain the relative positivity that gold performs before Trump's official inauguration and the clarity of his mechanism for implementing his promises.

Fourth: Currency Markets

Expectations continue to favor a strong dollar, particularly in the first six to twelve months of Trump's presidency, largely due to the potential impact of his fiscal policies in supporting high interest rates. However, some analysts suggest that these expectations could face challenges that might hinder the dollar's upward trajectory. Notably, Duncan Weldon, author of Two Hundred Years of Bluff: The Amazing Story of the British Economy, pointed out three key issues that could create obstacles for the dollar. These include the possibility of the Federal Reserve being forced to lower interest rates to stimulate economic growth, and the potential for hostility toward the dollar from countries affected by Trump’s economic policies.

Conclusion: 

In conclusion, financial markets have shown mixed reactions to Donald Trump’s second-term victory, with stock and cryptocurrency markets benefiting from optimism surrounding his economic policies, while gold and the dollar face uncertain futures. 

While his pro-business stance and support for the cryptocurrency sector have spurred growth, concerns about inflation, high interest rates, and potential global tensions may create volatility. The coming months will reveal how Trump's policies unfold and their broader impact on global financial markets.