Trump Trade 2025: How Trump's Second Inauguration Could Shape Financial Markets

With Donald Trump back in the White House, investors are closely watching how his familiar economic playbook—tax cuts, deregulation, and aggressive trade policies—could reshape financial markets. Dubbed the "Trump Trade," this approach drove market growth during his first term, but it also led to higher deficits and global trade tensions. Now, with Trump’s second term underway, market participants are weighing the potential opportunities and risks tied to his economic strategy.

Markets have already reacted strongly to Trump’s return. Following his inauguration speech, Bitcoin plunged from $106,000 to $101,000 before stabilising at $103,000, while other cryptocurrencies, including Solana and the newly launched TRUMP and MELANIA meme coins, experienced sharp declines. Meanwhile, Wall Street remained stable, with the Dow Jones Industrial Average rising 1.2%, the S&P 500 up 0.8%, and the Nasdaq climbing 0.6%. However, the Mexican peso and Canadian dollar weakened against the US dollar after Trump threatened to impose 25% tariffs on imports from Mexico and Canada starting in February 2025.

Trump's expected policy direction includes extending the 2017 Tax Cuts and Jobs Act, which reduced corporate tax rates from 35% to 21%. Lower taxes and deregulation could benefit sectors like financial services, energy, and technology, potentially driving further stock market growth. However, these measures may also fuel inflation and increase the federal deficit, raising the likelihood of higher interest rates. Bond yields have already risen in anticipation, with the 10-year Treasury yield climbing 14 basis points to a four-month high of 4.41%.

Global markets are also feeling the ripple effects of Trump's protectionist stance. His threat to impose a 10% tariff on Chinese imports has already caused Chinese stocks to decline, with the Hang Seng China Enterprises Index dropping by 1.8%. A renewed trade war with China could disrupt global supply chains, drive up costs, and increase market volatility. On the energy front, Trump's pledge to expand domestic drilling and fill strategic reserves has already put downward pressure on oil prices, with Brent crude futures down 0.8% and WTI futures falling 1.7%.

As Trump's policies begin to take shape, market volatility and sector shifts are likely to intensify. Investors should prepare for both opportunities and challenges as the "Trump Trade" unfolds. Will Trump's second term fuel another stock market boom, or will the risks of inflation and trade conflict derail progress?

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