Wall Street still doesn’t know what to make of Donald Trump: Morning Brief

This is the conclusion of today’s Morning Brief, which you can read Sign in Delivered to your inbox every morning, along with:

A decisive victory for Donald Trump removed any uncertainty about the results of the 2024 presidential election.

But what Trump’s second term means for investors is still up for debate.

“We think it’s fair to say that the U.S. stock market is in a process of discovery regarding the new administration’s domestic policy platform and that the political backdrop provides tailwinds and potential headwinds for equities in the coming year,” said RBC Capital Markets, head of USA equity strategy Lori Calvasina wrote in a research note on Monday about the outlook for 2025.

Market developments since Trump’s election victory on November 6th confirm this.

The S&P 500 (^GSPC) rose 2.5% the day after Trump’s election victory. Since then, the benchmark index has risen less than 1%. At one point, the S&P 500 completely reversed its post-election rally before rising again.

Small caps, a favorite trade of Trump, surged after the election, with the Russell 2000 Index (^RUT) rising about 9% in the immediate aftermath. Then trading reversed and the index gave back more than half of its gains. In another swing, the Russell 2000 hit an intraday record high on Monday.

As Calvasina wrote: “At the moment we simply do not know what the new government will do about its election promises or to what extent it will deliver on them, which further adds to the fog.”

Another pillar of Trump trading was the rise in long-term Treasury yields as investors feared new tariffs would drive up inflation. News late Friday that President-elect Scott Bessent would be naming the next Treasury secretary calmed some nerves and brought the 10-year yield back to about where it was on Election Day.

In a note to clients Monday, Paul Ashworth, chief North American economist at Capital Economics, cautioned against reading too much into Trump’s Cabinet picks because it is “uncertain what policies President-elect Donald Trump will implement in his second term.”

Ashworth’s comments get to the bottom of the market’s current problems: Ultimately, campaign promises are just that, promises.

During Trump’s first term, nearly half of the 15 people he originally appointed to lead executive departments left halfway through his presidency.

Venu Krishna, head of U.S. equity strategy at Barclays, chose none due to the “fluidity of Trump 2.0 policy” in a note Monday in which he released his 2025 S&P 500 year-end forecast of 6,600 “Include implications for how political changes in the U.S. could affect earnings or valuations.”

The story continues