Michael Nagle, Bloomberg/Getty Images
The Key Takeaways
- The market rose on Tuesday and Treasury yields declined as participants responded to the slew executive orders that President Donald Trump issued on the day he began his second term.
- Trump directed federal agencies to examine current trade policies, but did not impose tariffs. This helped calm markets that were agitated by Trump’s campaign rhetoric.
- Stocks of oil and renewable energies fell as Trump reversed Biden’s energy policy, which encouraged investments in renewables and limited production of gas and oil.
- Bitcoin rose from the lows it had reached earlier after SEC acting chief said that a new task force was being formed to develop a comprehensive regulatory framework.
The market was volatile as traders reacted after Donald Trump issued a slew executive orders on his first day as President.
Trump campaigned on promises of limiting immigration, creating trade barriers, cutting corporate regulations and extending tax cuts. But his first day in office, Morgan Stanley analysts wrote on Tuesday, "was heavy on executive actions to restrict immigration and trade, with little to nothing on deregulation and fiscal policy." That, they said, didn't mean the administration was de-prioritizing deregulation and tax cuts; just that Trump wanted to hammer home his "America First" narrative.
Trump's first day in office, they said, played out how they expected. "Consistent with our base case, broad and immediate tariffs were not announced," the analysts wrote, supporting their view that "tariffs will mostly target China imports," about 40% of which are currently exempt.
The Dollar Yields Falling on the Tariff Restrictions
The timing and scale of tariffs have been the biggest unknown hanging over financial markets since Trump's re-election. Treasury yields, and even the dollar rose in recent months as investors worried that U.S. Tariffs and International Retaliation would reignite inflation. This was despite the Federal Reserve cutting interest rates. The absence of trade action on Monday—aside from executive orders directing federal agencies to review existing trade policies—came as a relief to financial markets, and both Treasury yields and the dollar fell.
The international stocks also felt relief. Trump’s comment that he might impose 25% tariffs on Canadian and Mexican products as soon as 1 February was not enough to stop stocks from rising on both sides of the border on Tuesday. The MSCI Emerging Markets Index increased more than 1%, while Chinese stocks remained stable.
Energy and Renewables stocks hit by executive orders
Among Trump's main focuses on Monday was U.S. energy, specifically oil and gas production. Trump on Monday declared a "national energy emergency," the first of its kind, to expedite the extraction of fossil fuels and "unleash American energy."
Yesterday, the day after Martin Luther King Jr. Day was observed, oil futures dropped and then continued to fall on Tuesday. Trump’s order and “drill, baby, drill” Prices will be affected by the increase in oil supply. West Texas Intermediate crude, which is the U.S. benchmark oil, was down over 2% at $76 per barrel on Tuesday.
Oil prices followed by falling energy stocks. The S&P 500 Energy Sector Index slid 0.6% and was the only sector group to lose ground. ExxonMobil shares (XOM), and Chevron’s (CVX), America’s two most valuable oil companies, both fell by 0.8%.
Trump also signed orders to undo the clean energy support of his predecessor. Trump, on Monday, removed the U.S.from the Paris Agreement. He also halted new wind farms being built off the U.S.coast. First Solar (FSLR), and Enphase Energy, (ENPH), fell by 4.9% and respectively 1.3%.
Crypto left out of day one priorities
Prices of cryptocurrency fell on Monday, after Trump ignored the industry in his inaugural address. Bitcoin (BTCUSD), a cryptocurrency, reached an all-time peak of almost $110,000 on Monday morning ahead of Trump’s inauguration. This was a result of Trump insisting that his administration would provide regulatory clarity to the sector.
Bitcoin slid to around $100,000 in the early-morning hours Tuesday before rebounding to trade around $106,5000 recently as Trump's acting SEC director announced the establishment of a task force that aims to create a clear regulatory framework for crypto assets.
On Tuesday, assets bearing Trump’s name were sold. This was likely due to speculators profiting from the asset’s value increase in the weeks leading up to Trump’s inauguration. Shares of Trump Media & Technology Group (DJT), the parent company of Truth Social, slid 11% after rising 16% in the week leading up to Monday’s inauguration.
Trump’s meme coin, which he began to sell for $7 per token at the end of Friday night, was worth more than $75 on Sunday morning. It has since fallen back down to about $45. Melania’s first lady meme coin was also priced at $7 per token on Friday, but it traded for $4.50 by Tuesday.
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