Dow Jumps Over 500 Points As Trump Takes Office: Investor Sentiment Improves, But Greed Index Remains In 'Fear' Zone

The Dow Jones Industrial Average (DJIA) surged by over 500 points on Tuesday, January 22, as President Donald Trump began his second term in office. The strong rally was led by the Dow Jones and Smallcap names, with the S&P 500 gauge up almost 1% (Source: 2025-01-22). Investor sentiment improved, but the Fear and Greed Index remained in the 'Fear' zone, indicating a cautious market outlook.



Several factors contributed to the market's positive response to Trump's inauguration:

1. Investment push in artificial intelligence: Trump announced a new investment push in artificial intelligence led by Softbank Group Corp., OpenAI LLC, and Oracle Corp. (Source: 2025-01-22). This initiative boosted investor confidence in tech shares, contributing to the market's positive reaction.
2. Executive orders: Trump's flurry of executive orders, including those focused on space shares and reducing regulations, also helped boost the market (Source: 2025-01-22).
3. Absence of tariffs on China: Despite Trump's protectionist stance during his campaign, he has yet to impose tariffs on China, which has relieved investors and contributed to the market's positive response (Source: 2025-01-22).
4. Historical precedent: The market's initial reaction to Trump's inauguration aligns with historical patterns, as stocks tend to rise during the first few days of a new presidential term (Source: "The Most (and Least) Effective US Presidents, According to Historians").

However, the Fear and Greed Index remained in the 'Fear' zone, indicating that investors are still cautious about the potential economic consequences of Trump's protectionist measures, such as tariffs on steel and aluminum and the trade conflict with China over intellectual property. These measures have been identified as the biggest tail risk 20 times from March 2018 to December 2019 in the Bank of America/Merrill Lynch monthly fund manager survey. Despite the signing of a Phase One trade agreement between the U.S. and China in January 2020, most tariffs remain in place, and trade tensions persist.

Market participants are balancing optimism about potential economic growth under Trump's leadership with concerns about trade tensions and geopolitical risks. On one hand, investors are optimistic about Trump's pro-growth policies, such as tax cuts and deregulation, which have contributed to the strong rally in U.S. markets since his election. On the other hand, investors are concerned about the potential economic consequences of Trump's protectionist measures, such as tariffs on steel and aluminum and the trade conflict with China over intellectual property. These measures have been identified as the biggest tail risk 20 times from March 2018 to December 2019 in the Bank of America/Merrill Lynch monthly fund manager survey. Despite the signing of a Phase One trade agreement between the U.S. and China in January 2020, most tariffs remain in place, and trade tensions persist.

In conclusion, the Dow Jones Industrial Average surged by over 500 points on Tuesday, January 22, as President Donald Trump began his second term in office. Investor sentiment improved, but the Fear and Greed Index remained in the 'Fear' zone, indicating a cautious market outlook. Market participants are balancing optimism about potential economic growth under Trump's leadership with concerns about trade tensions and geopolitical risks.