Trump Trade Falters in 2025, Investor Bets Flounder
The Trump trade, which propelled markets in late 2024, has stumbled in 2025. Market movements in stocks, bond yields, and the dollar have stalled or deviated from expectations. Inconsistent messaging on tariffs has swayed market perceptions of rate direction and inflation.
Sputtering Stocks
Optimistic forecasts predicted a stock market rally driven by lower taxes, deregulation, and reduced energy costs. However, while the S&P 500 has gained 3% year-to-date, it has lagged behind international peers, with the MSCI All Country World Index ex USA up 5%.
Regulatory delays and uncertainties have impacted individual stocks and assets tied to the Trump trade. Trump Media & Technology Group and Tesla have lost 11% and 19%, respectively. Bitcoin's rally has also stalled, with only a 3% gain year-to-date.
Falling Bond Yields
Bond yields were expected to rise due to inflation expectations from mass deportations and tariffs. This was seen as restricting the Federal Reserve's ability to cut rates and potentially leading to hikes.
However, the 10-year US Treasury yield has fallen from 4.57% to 4.42% this year. The probability of two Fed rate cuts has increased. Yields rose 11 basis points on Wednesday after a hotter-than-expected January inflation report.
Stagnant US Dollar
The US dollar was projected to strengthen against international counterparts due to higher interest rates and protectionist trade policies.
Yet, the US dollar index has declined by 0.4% year-to-date. It has since gained 0.3% in response to inflation data. Inconsistent tariff announcements have dampened the dollar's rally.
Market Volatility and Unmet Expectations
The Trump trade has highlighted the adage "Buy the rumor; sell the news." Markets anticipate potential benefits but can be disappointed when their realization takes longer than expected.
Despite the Trump administration's swift pace, it cannot always meet the lofty expectations of investors, leading to market uncertainty and volatility.