Market on Edge: Trump's Speech Today Could Spark Excitement or Uncertainty

As the world watches the U.S. election, eagerly awaiting the outcome of this year’s presidential race, investors are faced with a high degree of uncertainty. Will markets react positively if Trump is reelected? After all, he stands for deregulation and tax cuts. Or will a Biden win move the needle in the right direction, in the hope that he brings stability to the White House?

Either way, the election outcome will define the next four years and it’ll be interesting to observe the market’s initial reaction to the result. As the following chart shows, the past five presidential elections didn’t evoke extreme market reactions, with Barack Obama’s first triumph in 2008 a notable exception. Back then, the S&P 500 dropped 10 percent the first two days after the election, although it needs to be noted that said election took place in the middle of the financial crisis, which left markets particularly volatile.

Trump’s victory four years ago didn’t prompt an extreme market reaction, despite the surprising nature of his win over Hillary Clinton. Back then, the S&P 500 climbed 1.1 percent on post-election day and continued its general upward trend the days that followed.



As we approach the 2024 election, investors are once again wondering how the markets will react to the outcome. With Trump’s return to office anticipated to bring a mix of policy changes, including economic strategies that promise to shape market dynamics, regulatory frameworks, and international trade, our study aims to investigate the U.S. stock market’s reaction to the election outcome, focusing on the variations in response across firms of different sizes—large, medium, and small—and across diverse industry sectors.



The efficient market hypothesis (EMH) serves as a framework for understanding the market’s response to major political events such as presidential elections. According to the EMH, stock prices reflect all available information, and any new, unexpected information—such as the outcome of an election—should be rapidly incorporated into asset prices (Fama, 1970). Previous studies exploring the connection between political uncertainty and financial market outcomes indicate that the fear of political instability has a significant and negative impact on stock market returns and the risk profiles of financial assets (e.g., Brogaard et al., 2020; Wagner et al., 2018). Using Donald Trump’s surprise 2016 election win as a setting, Wagner et al. (2018) show that stock price gained for high-tax firms and those with substantial deferred tax liabilities, while stock price fell for firms with significant net operating loss deferred tax assets. Li and Born (2006) find that in a presidential election, where no candidate holds a clear lead, stock market volatility and average returns tend to increase. Moreover, firms with connections to presidential candidates experienced higher abnormal returns during the 2016 election period (Child et al., 2021). Further, the U.S. election cycle could be a significant non-diversifiable political factor influencing international conditional expected stock returns (Foerster and Schmitz, 1997).

Trump’s victory elicited a mix of hope and concern in the financial community. On one hand, many investors and market participants expressed optimism about potential economic policies including stimulus measures, tax reductions, and deregulation. His previous presidency (2017–2021) featured significant tax reforms and pro-business policies that coincided with economic growth and stock market gains (Crawford and Markarian, 2024).1 This optimism pointed to potential gains in sectors like energy and finance, which could benefit from deregulation. Supporters anticipated that Trump’s policies would stimulate economic growth, reduce regulatory burdens, and create a more business-friendly environment, boosting corporate profitability. With a Republican-controlled Senate, House, and a 6–3 conservative majority Supreme Court, Trump has a significant advantage in implementing his agenda with minimal legislative or judicial opposition. His strong influence over the Republican Party and intolerance for dissent suggest that legislation may pass more smoothly, ensuring political stability at least until the midterm elections. The absence of anticipated government shutdowns further supports this view. Additionally, Trump’s opportunity to appoint federal judges and U.S. attorneys, who historically lean more corporate-friendly, could be another positive signal for businesses. Research indicates that liberal judges tend to pose more regulatory challenges for corporations (Huang et al., 2019); thus, Trump’s appointments could further support a pro-business environment.

On the other hand, concerns about Trump’s trade policies and potential tariffs have weighed on investor sentiment. The U.S. market witnessed a mixed trend on Tuesday, January 21, 2025, which comes after the first day of Donald Trump as US President. US stock futures traded volatile, while the dollar surged to above 108.5 levels against a basket of currencies. Spot Gold strengthened above $2,720 an ounce. However, treasury yields and US indices like Dow Jones, S&P 500 and Nasdaq Composite will react to Trump's inaugural speech and executive orders on January 21, in the late evening of Indian Standard Time zone. The reason is that Wall Street was closed from January 18-20 due to the weekend and Martin Luther King Jr Day.

US Stocks Futures:
- Dow Jones Futures - Mar 25: +152 points or 0.4% to trade at 43,850
- S&P 500 Index Futures: +14.75 points or 0.24% to trade at 6,048.25
- Nasdaq-100 Futures: +41.50 points or 0.19% to trade at 21,640.25

According to Trading Economics data, the US stock futures struggled to gain momentum on Tuesday after President Donald Trump announced he was considering imposing 25% tariffs on Canada and Mexico as early as Feb. 1, citing concerns over illegal immigration at the US border. The data added, that Trump also mentioned China but did not offer further details. His remarks disappointed traders who had hoped for a delay in new tariffs, especially after reports on Monday suggested no immediate tariff actions as part of his early executive orders. However, market participants remain focused on Trump's pro-business agenda, including promises of deregulation and tax cuts, which could support a positive outlook for equities.

Dollar Index:
- The USD Dollar index surged to 108.5 on Tuesday against a basket of currencies, recovering some losses after a pullback in the previous session.
- The dollar gained momentum due to the 25% tariff plan on Canada and Mexico.

Spot Gold:
- With expectations of spur in inflation due to Trump's policies, spot gold rose by 0.5% to trade at $2,724 an ounce.
- Trading Economics data said, fiscal and trade policy uncertainty, coupled with the abandonment of renewable energy commitments and the Paris Accord, supports safe-haven demand.
- A weaker dollar following Trump's inauguration further underpins gold, while expectations of limited Fed rate hikes amid soft U.S. economic data add to its allure.

What To Expect From Dow Jones, S&P 500 and Nasdaq Composite on January 21?
Reuters quoted Jack Ablin, chief investment officer at Cresset Capital who said, "Most of what he has been talking about will help spur growth and corporate profits." He added, "But many will come at a cost. We will need to see a lot of earnings growth to make up for even a minor increase in interest rates that could follow higher tariffs."

Last week, major indices like Dow Jones, S&P 500 and Nasdaq Composite surged by 2.5% to 3.7%. DJIA outperformed its counterparts with gains of nearly 4%, making it the largest weekly performance since November last year. A softer-than-expected inflation data heightened the probability of a rate cut from the US Federal Reserve ahead, which dampened the mood in the dollar and yields. Noteworthily, as per the data, stocks linked to cryptocurrencies, Trump-related businesses, and major tech firms were among the week's top performers.

Also, the data revealed that the 10-year US Treasury yield dropped below 4.6% on Friday, declining by 25bps since hitting its 14-month high on Tuesday amid expectations that the Fed will ease monetary restrictions this year.

Prashanth Tapse, Senior VP (Research), Mehta Equities said, this Tuesday morning, Gift Nifty is in the green as traders reacted positively to US President Donald Trump's inauguration speech, where he promised a 'new golden age' without confirming immediate tariffs. The improving risk sentiment could push Nifty towards 23,500, supported by declining WTI oil prices at $77.5 per barrel and a weakening US Dollar index.

In conclusion, as we await Trump's speech today, investors are on the edge of their seats,