US stocks saw a notable rally on Tuesday, the first full trading day of President Donald Trump’s second term, as investors reacted to a series of executive orders that signaled a more cautious approach on trade.
The Dow Jones Industrial Average surged by 1.2%, or 538 points, while the S&P 500 gained 0.9%. The tech-heavy Nasdaq Composite rose by 0.6%, reflecting broader optimism across the markets.
Trump’s Tariff Plan and Market Reaction
President Trump signed a series of executive orders on Monday, including a planned 25% tariff on Mexico and Canada starting February 1. However, he refrained from mentioning any new tariffs on China, one of the US’s largest trade partners. While tariffs on China remain in place from Trump’s first term, President Trump suggested that additional tariffs could be implemented if Beijing fails to approve a deal on TikTok, the Chinese-owned app under scrutiny for national security concerns.
Alec Phillips, chief US political economist at Goldman Sachs, noted that the tariff announcements were less aggressive than expected, helping to ease market fears. “The market seems to have overcome its tariff tantrum,” said Jamie Cox, managing partner at Harris Financial Group, in an email.
Morgan Stanley analysts also cautioned that Trump’s emphasis on tariffs as early as February 1 could indicate potential market volatility, urging investors to remain vigilant as policy decisions continue to unfold.
Optimistic Economic Outlook
Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, expressed an optimistic outlook despite the tariff risks. She predicted that resilient US economic activity, solid earnings growth, and lower borrowing costs would drive stock prices higher in 2025. Marcelli expects the S&P 500 to reach 6,600 by December, though she warned that market volatility could persist due to concerns over fiscal policy, inflation, and Federal Reserve actions.
The US dollar, which has been strengthening in anticipation of Trump’s second term, dipped slightly after news of the proposed tariffs. Meanwhile, WTI crude oil, the US benchmark, fell 1.7% following Trump’s executive orders aimed at reversing environmental regulations to boost domestic oil drilling.
Market Sentiment and Key Stock Performances
The Russell 2000 index, tracking smaller companies, saw a strong gain of 1.85%. Investors were also buoyed by the news that OpenAI CEO Sam Altman would meet with Trump and other tech leaders to announce a significant private sector investment in artificial intelligence infrastructure in the US. Oracle’s stock surged nearly 7% in response to the news that it would partner with OpenAI and SoftBank for the initiative.
Trump Inherits Strong Stock Market Performance
From Trump’s election in November until his inauguration day, the S&P 500 gained nearly 4%, marking one of the best performances during a post-election transition. Historical trends suggest that positive market performance during this period often signals gains for both the first 100 days of a presidency and the broader year.
Clark Geranen, chief market strategist at CalBay Investments, noted that much of the optimism regarding tax cuts and deregulation has already been priced in following the post-election stock market surge. He cautioned that the market could experience volatility as investors react to Trump’s policy moves.
Volatility and Inflation Data Impact
Investor sentiment was buoyed by the recent easing of inflation fears, as data released on January 15 showed inflation was lower than expected. The VIX, Wall Street’s fear gauge, dropped by 6%, reflecting a calmer outlook for the time being.
Charles Schwab saw a boost in its stock price, rising nearly 6% after the company reported strong fourth-quarter earnings, surpassing expectations. Apple, however, saw a decline of over 3% after analysts downgraded its stock.
Cryptocurrency and SEC Focus
Bitcoin traded at around $106,000 on Tuesday afternoon, after briefly surpassing a record high of $109,000 the day before. Mark Uyeda, acting chairman of the Securities and Exchange Commission (SEC), announced the formation of a new “crypto task force” to focus on reviewing cryptocurrency regulation. Despite the rising interest in digital currencies, Trump did not address Bitcoin or issue any crypto-related executive orders during his inauguration week.
Conclusion
As markets digest the implications of Trump’s presidency, all eyes will be on how his policies, particularly regarding tariffs, affect economic stability and stock performance over the coming months.
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