Trump’s Win Sparked Euphoria in Markets, Now Comes the Real Test

Donald Trump’s victory in the November US presidential election sparked an immediate rally in markets, with stocks flying, the dollar soaring and Bitcoin leaping off the charts. But just two months later, the Republican is set to return to the White House, and only some of those trades endure.

Author of the article:

Bloomberg News

Esha Dey and Carter Johnson

Published Jan 19, 2025  •  5 minute read

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(Bloomberg) — Donald Trump’s victory in the November US presidential election sparked an immediate rally in markets, with stocks flying, the dollar soaring and Bitcoin leaping off the charts. But just two months later, the Republican is set to return to the White House, and only some of those trades endure. 

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The reversal was first apparent in the stock market, where the S&P 500 Index gave back a solid chunk of its “Trump bump” as investors began to question the Federal Reserve’s anticipated interest rate cuts and what the new administration’s policy proposals will mean for share prices. The Treasury yield curve has also steepened sharply since late November after flattening initially. Meanwhile, Bitcoin and the dollar have held their gains. 

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But the real test for these bets comes now, as Trump takes office. Tariffs are the biggest risk, sparking fears that the administration’s plans could lead to more prolonged and unpredictable trade wars than during his first presidency. Wall Street pros also worry about how any actions on immigration will affect the US economy. And they fear heightened geopolitical tensions with Trump already taking aim at some traditional US allies like Canada, Mexico and Europe. 

“Forecast is the polite way to say guess, but we have to make assumptions about these policies because they will affect the economic outlook,” Citigroup’s chief US economist Andrew Hollenhorst said on a 2025 forecast call.

Here’s a look at the assets and sectors that traders are watching as the new administration takes over. 

Stocks

The initial rush of Trump euphoria showed up quickly in some beaten down corners of the stock market, like small-capitalization companies. The Russell 2000 Index jumped 5.8% on the day after the election for its best session in two years. The logic was simple: The incoming administration’s protectionist trade policies would most help the group that typically generates the bulk of its revenue at home. 

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But the enthusiasm quickly faded. The index soared 8% from Nov. 5 to Nov. 25, and then proceeded to give back much of that gain over the ensuing weeks.

“Since so many of these stocks are marginally profitable or outright unprofitable, they are reliant upon funding to stay afloat, and higher rates hurt that narrative,” said Steve Sosnick, chief strategist at Interactive Brokers. 

Bank stocks experienced their own post-election frenzy, as Trump promised to ease regulations on lenders. The KBW Bank Index leaped almost 14% from Nov. 5 to Nov. 25, when it hit a 52-week high. After that, however, it lost momentum, retreating 1.8% through Friday.  

Shares of energy companies also caught a post-election bid based on Trump’s “drill-baby-drill” stance on oil and gas production. The S&P 500 Energy Index climbed 3.5% on Nov. 6 for its best session in a year, and rose 6.5% from Election Day through Nov. 22. Since then however, it’s been on a turbulent ride, losing 3.2% amid fears of oversupply, tariffs and economic growth.

The stock market trades that have held up well are in areas where investors have relative clarity. Stocks related to cryptocurrencies have largely kept their winnings. And then there’s Tesla Inc. The electric vehicle maker’s stock is up 70% since Trump’s win, even though the incoming president is a notorious EV skeptic. The thesis is that Elon Musk’s closeness with the administration will help the company’s ambitions to build fully self-driving cars. 

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“Nothing really worked as a post-election trade in equities except crypto and Tesla,” Sosnick said. 

Currencies 

Perhaps the purest expression of the pre-election Trump trade was being long the dollar, based on sharp tariffs and the inflationary possibilities of the Trump administration’s expected looser fiscal policy. 

A Bloomberg gauge of the greenback is up 5% in the 10 weeks since Election Day, similar to the gains it posted after Trump’s 2016 victory. Underpinning the move is a corresponding weakness in global currencies considered at risk from Trump’s economic policies, including the euro and Canadian dollar. 

Wall Street largely saw this coming. JPMorgan Chase & Co. analysts led by Meera Chandan predicted that the euro could weaken toward parity if Trump won, while Barclays Capital FX strategist Skylar Montgomery Koning said the loonie could fall to pandemic-era lows. Chandan and her team now expect the euro to trade below parity this quarter. 

“I think the tariffs are not fully priced in yet,” Chandan, head of global FX strategy at JPMorgan, said on a recent podcast. 

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Most emerging-market currencies have weakened in the wake Trump’s victory. The MSCI gauge is down 2.2% since Election Day, with the South African rand and European currencies leading the decline.

The Mexican peso, traders’ favorite currency to bet against in the lead up to the vote, has weakened 3.4% versus the greenback since the election, actually faring better than most of its 31 major peers tracked by Bloomberg. The peso’s relative resilience comes as traders push back the timeline for the Fed’s interest-rate cuts, which they say will also make Mexican policymakers more cautious.

China’s yuan, meanwhile, has lost more than 3% versus the dollar since Nov. 5 in both onshore and offshore trading, due to tariff risks and a widening gap between US and Chinese government bond yields. The People’s Bank of China has deployed various tools to support the currency, and depreciation expectations have been trimmed since peaking in early December. 

Rates

A Trump victory, not to mention a Republican sweep, was expected to steepen the yield curve, based on policy proposals that were seen as stoking inflation and weighing on longer-term US debt. And that’s pretty much what’s happening, with the gap between 10-year and two-year Treasury yields widening to roughly 34 basis points, near the steepest since the beginning of 2022, while longer-dated Treasuries have tumbled in the run-up to Trump’s inauguration. 

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“We’re starting to see curves steepen,” said Neil Sutherland, a portfolio manager at Schroder Investment Management. “The fact that the Fed has cut a hundred basis points and long yields have gone up tells you a lot of that is already happening in the market.”

Resilient US economic data and uncertainty around Trump’s policies have weighed on the short-end rates as well. Swaps traders are now pricing fewer than two quarter-point interest-rate cuts from the Fed this year. Ahead of the election, they expected roughly six reductions. 

Still, the only certainty in markets right now is uncertainty. Rates traders got a chance to see that last week, as a softer-than-expected reading of monthly core inflation sent Treasury yields plunging across the curve.   

“At the moment, sentiment is so negative in the Treasury market, there’s a risk that yields could actually go lower,” said Sutherland. 

Crypto

Trump, once a skeptic of cryptocurrencies who said Bitcoin “seems like a scam,” has done a full reversal and now has strong support from the crypto business. He’s planning to release an executive order making crypto a policy priority and give industry insiders a voice in his administration, Bloomberg reported, citing people familiar with the plans. He is also expected to lighten regulation and create a strategic stockpile of Bitcoin. 

Naturally, crypto assets have surged since the election, with Bitcoin reaching a record in mid-December and gaining some 50% from its price on Nov. 5. The Bloomberg Galaxy Crypto Index jumped 11% on the day after the vote and has added another 29% since then. 

—With assistance from Maria Elena Vizcaino and George Lei.

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