Trump's First Speech: Wall Street to Focus on Three Key Issues

Trump's first speech, as Trump prepares to deliver his first address of his second term, Wall Street is poised to pay close attention to three major topics that could significantly impact the market and economic outlook.

Despite the inauguration not being a venue for new presidents to unveil detailed policy plans, "the market will react to what it sees."

Trump will be sworn in during the early hours of Tuesday, Beijing time, officially commencing his second term as President of the United States.

During his campaign, Trump made numerous promises to appeal to voters, including on immigration, international trade, and even Bitcoin. However, one of the most critical issues for voters—and likely a key reason for his electoral victory—is the economy.

Now, Trump must deliver on these promises, with not only his voters but also Wall Street closely monitoring these policies.

Market Uncertainty

Craig Sterling, Head of U.S. Equity Research at Amundi U.S., remarked on the uncertainty surrounding Trump’s policies, stating, "I think this hasn't been digested yet." He noted that the lack of clarity regarding the details of Trump's policies makes it difficult for the market to reflect their potential impact in current stock valuations. As Sterling puts it, "the market will pay for what it sees."

According to Dow Jones market data, the Dow rose 3.7% in the week leading up to Trump's inauguration, with the S&P 500 up 2.9% and the Nasdaq up 2.5%. Since Election Day last November, the Dow and S&P 500 have risen by 3% and 3.7%, respectively—this marks the weakest performance for these indices between Election Day and Inauguration Day since Barack Obama took office during the global financial crisis in 2009.

Reports indicate that Trump plans to take immediate action, preparing around 100 executive orders in anticipation of his inauguration, which may soon provide investors with clearer information. In this context, the three primary policy areas of interest for investors are: import tariffs, deregulation, and corporate tax cuts.

Import Tariffs

Trump tariff threat: tariffs have been one of the most closely watched policies for Trump’s second term. In addition to branding himself as a "tariff man," Trump has informally proposed imposing a 25% tariff on all products from Mexico and Canada, as well as an additional 10% tariff on goods from China.

By imposing new tariffs, particularly on trade partners like Mexico and Canada, Trump could provoke trade tensions that would raise costs for U.S. companies.

According to a recent report from the Boston Consulting Group, imposing tariffs on goods from China, Mexico, Canada, and other nations could increase the cost of imports to the U.S. by $640 billion.

Companies and industries that rely heavily on imports from these countries will feel the rising costs more acutely. The report highlights automobile manufacturers, apparel companies, and consumer electronics manufacturers as examples.

However, just because a company is not directly impacted by the tariffs does not mean it is safe. Some investors worry that additional tariffs could trigger inflation. Given that the Fed successfully lowered inflation after the COVID-19 pandemic in 2020, investors are sensitive to any factors that could push inflation back up.

"This will be a big deal," said Mike Dickson, Director of Research at Horizon Investments. "I think some of the concerns and risks around tariff policy have heightened worries about inflation. This is why we are seeing upward pressure on interest rates."

In recent months, markets have reacted strongly to news regarding inflation and interest rates. For instance, the stock market faced significant sell-offs after the Fed's hawkish statement on interest rates on December 18, and surged following better-than-expected CPI inflation data on January 15.

Reports suggest that Trump’s advisory team is considering a gradual increase in tariffs to avoid a sharp rise in inflation. But until Trump's tariff policies and their inflationary impact are clarified, investors will be looking for more clues.

Deregulation

In December, Trump stated that for every new regulation implemented, he wanted to eliminate ten old ones. While it remains unclear which regulations will be rescinded, Suzanna P. Clark, President and CEO of the U.S. Chamber of Commerce, indicated that regulatory rollbacks would unleash the economy's "animal spirits."

The financial sector is expected to be a major beneficiary of deregulation. The Wall Street Journal reported that Trump’s advisors are seeking to reduce or limit the influence of banking regulators. Jamie Dimon, CEO of JPMorgan Chase, noted that Trump’s deregulatory plans have excited bankers, as they could lead to reduced lending regulations—essential to banking operations.

Following Trump's election victory, financial sector stocks surged, with the S&P 500 Financials index rising nearly 6.2% on November 6. Financial stocks continued to climb in the following weeks before stabilizing around the levels near November 6 prior to the inauguration.

However, the financial industry is not the only sector that could benefit from regulatory rollbacks. The energy sector and certain companies in materials and industrials may also gain from a more lenient regulatory environment.

Sterling pointed out that U.S. manufacturers have been grappling with long-term slow growth since the pandemic, but as the "regulatory pendulum swings in the other direction," future growth may be stimulated.

Corporate Tax Cuts

In 2017, Trump and the Republican-led Congress passed comprehensive tax legislation, parts of which are set to expire in 2025. Trump is expected to extend these tax cuts after taking office.

The 2017 tax legislation lowered the corporate tax rate to 21%, but Trump has repeatedly proposed reducing it to 15%. Lowering costs and increasing profit margins through tax cuts would benefit any business, making investors excited about potential corporate tailwinds.

"The incoming administration may prioritize domestic growth through tax cuts, targeted fiscal stimulus, and deregulation," wrote Jonathan Coleman, Small-Cap Growth Portfolio Manager at Janus Henderson Investors, in a report. "These measures can support small-cap stocks, as they are more economically sensitive than large-cap stocks. We expect that small-cap earnings growth could surpass that of large caps by 2025, given that profitability is relatively easier."

While businesses may take time to feel the impact of tax cuts, official announcements regarding tax policies could spark bullish sentiment among investors.

Looking Ahead to Trump’s Inauguration

Trump will deliver his first speech of his second term on Inauguration Day. While there are many topics to discuss, investors may not receive the answers they are seeking that day.

"Will Trump provide any real clues about the policy agenda? Probably not," wrote Steven Barrow, Head of G10 Strategy at Standard Bank, in a report. "If this speech is anything like his 2017 inaugural address, it will be exaggerated but lacking in detail. This is not surprising; inaugurations are not the venue for new presidents to showcase policy details."

Even if Trump announces policies in his first week, the direct or dramatic impact on the economy may be limited.

"The reality is that the U.S. economy is not a speedboat; it’s a massive supertanker. Even with the most radical policy changes, it takes time to turn it around," wrote Adrian Helfert, Chief Investment Officer at Westwood Holdings Group.

Nonetheless, investors remain attentive to Trump's comments, and as his second term approaches, many questions await answers. Any shifts in tone could trigger significant reactions in the short term.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.