Will the Trump Trade Continue for Stocks, the USD and Bitcoin?

Bitcoin and the US dollar surged after Donald Trump’s victory on Thursday, as the “Trump Trade” suggests, while risk assets tumbled, but we saw a reversal on Thursday, with risk assets surging and the USD tumbling lower. However, Friday had reserved another reversal, which put the USD in the front run. The price action has been volatile in both directions, so, will the “Trump Trade” continue?

The Republicans won the popular vote which gives them control of the Senate, and Trump acknowledged it in his winning speech. US stock markets surged as well, with the S&P 500 making decent gains every day this week and closing above 6,000 points, while the NASDAQ index closed above 21,000 points.

Market Reaction to Trump’s Win: The “Trump Trade” Takes Off

The US dollar, Treasury yields, stocks, and cryptocurrencies all saw substantial gains as markets reacted predictably to Trump’s victory, setting off the so-called “Trump Trade.” The US Dollar Index climbed, though it fell slightly from session highs, with potential to reach its 2024 peak of 106.52.

While commodities and other high-risk assets initially sold off, they staged a strong recovery the following day, driven by expectations of a Chinese stimulus package. However, when the anticipated stimulus underwhelmed, risky assets declined again. In the cryptocurrency space, Ethereum surged around 9% toward the $3,000 mark, and Bitcoin reached a record high of $77,000, even amid USD strength.

Mixed Reactions and Long-Term Expectations

Interestingly, the US dollar’s initial gains post-election reversed on Thursday, erasing much of its advance following Trump’s win. This dip surprised some, given Trump’s policies are expected to boost GDP growth, potentially leading to a sooner-than-expected end to the Federal Reserve’s rate cuts. However, Since the dollar had already been rallying in the weeks leading up to the election, it appears the market was priced in for a Trump victory, and this may have led to a “sell the fact” response.

Policy Outlook: Tax Cuts, Tariffs, and Trade

As Trump prepares to assume office on January 20, markets are already looking ahead to his likely policy priorities: tax cuts, tighter immigration restrictions, and tariffs on imports, especially from China. Trump’s second term is expected to extend the protectionist stance he took in his first, with new trade tariffs anticipated for US businesses and consumers. Though he did not address these policies in his victory speech, significant tax reforms that reduce taxes for American citizens, increase spending, and boost consumer confidence are widely expected.

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