Trump's Trust in Bessent Is Shifting Market's Interest From 'Trump Trade' To 'Bessent Trade'

The news of billionaire Bessent being named  the next Secretary of the Treasury has made the market quickly shift from the previously ongoing Trump Trade to the Bessent Trade.

The position of U.S. Treasury Secretary is responsible for advising the President on economic and financial affairs and ensuring the stability of the government bond market, therefore it is regarded as one of the four most important positions in the U.S. Cabinet. Trump previously stated that among all the candidates for the Treasury Secretary position, he trusts Bessent more and believes he is more capable of implementing the government's new policies.

Over the weekend, Bessent, in his first interview after being nominated, stated that his policy focus would be to fulfill Trump's various tax cut promises, including making the tax cuts implemented during Trump's first term permanent, as well as eliminating taxes on tips, social security benefits, and overtime pay. He also said that he would focus on advancing tariff policies and cutting spending while maintaining the status of the dollar as the global reserve currency.

The Market Quickly Shifted to 'Bessent Trade'

Based on Bessent's first statement and Trump's trust in him, the market expects that fiscal policy in the Trump 2.0 era is likely to take a gradual approach and actually implement tariff policies in stages, easing the impact of Trump's more radical trade and economic policy proposals on the market during his campaign.

Greg Peters, co-chief investment officer of PGIM Fixed Income, a major asset manager, said, The market was so worried about someone a little more extreme. This is a nominee who is capable and qualified and considered 'the adult in the room.' The market quite likes it.

Shaun Osborne, chief foreign exchange strategist at Scotiabank, said, Bessent is viewed as a potentially moderating influence on the incoming administration's policies. Favoring gradualism on tariffs, for example.

The dollar and cryptocurrencies immediately reversed last week's gains and fell on Monday. The U.S. dollar index, which measures the value of the dollar against six major currencies, ended its strong rise since the end of September, falling 0.6% to 106.89, and at one point recorded the largest drop in more than two weeks. Previously, the dollar was the main beneficiary of the Trump Trade, rising more than 7% from the beginning of last month to last Friday. Bitcoin, which is also a major component of the Trump Trade, continued its weekend decline on Monday, falling below $94,000.

Ethereum was relatively strong, rising 3.9% to around $3,500, but it also followed Bitcoin's decline afterward. Blockchain stocks fluctuated. Bitcoin holder MSTR fell more than 4%, TeraWulf fell more than 6%, and BTCDigital fell more than 8%. Cryptocurrency exchange giant Coinbase rose about 2.5%, BeyondInc. rose more than 9.4%, AppliedDigital rose more than 8%. Ethereum ETF FETH rose 6.65%.

Gold also fell due to Bessent's nomination and the news that Israel may reach a ceasefire agreement with Hezbollah in Lebanon within a few days. According to FactSet data, gold spot prices fell 3.44% to $2,616.80 per ounce after Bessent's nomination. Nicky Shiels, head of metal strategy at precious metal dealer MKS Pamp, said, The ~$100 wipeout in Gold today is as severe in size & pace as the post U.S. election selloff on Nov 6th.

U.S. stocks and bonds rose in tandem. The S&P 500 and Dow Jones Industrial Average both hit record highs during the session and ended higher. U.S. bonds have become the biggest winner under the Bessent Trade. Previously, due to a series of strong U.S. economic data, coupled with concerns that Trump's policies would trigger reflation, the market adjusted the expectations of the Federal Reserve's rate cuts, turning the five-month rise in U.S. bonds into a two-month selling wave. On the 25th, U.S. bonds had one of their strongest trading days in recent months. The 10-year U.S. bond yield fell 14 basis points to 4.27%, one of the best performances of the year. The yields of other maturities of U.S. bonds also fell by double-digit basis points.

This is partly due to market expectations that Bessent will follow fiscal discipline and not let the U.S. fiscal deficit deteriorate excessively. Bessent once stated that the current U.S. Treasury Secretary Yellen overused Treasury bills to fund the government. On the other hand, Bessent also tried to alleviate market concerns about reflation.

Paul Donovan, chief economist of UBS Global Wealth Management, said that having at least one important member of the cabinet opposing the continuous imposition of trade taxes is a good thing for the market. Vincent Chaigneau, head of research at Generali Investment Management, believes that Bessent's nomination indicates that Trump may not fully implement the most inflationary policies, including tariffs.

How Will The Global Market Be Affected?

The market generally believes that Bessent's nomination will support the continued rise of the U.S. stock market. Susannah Streeter, head of funds and markets at Hargreaves Lansdown, the UK's largest retail trading platform, said in her research that Trump's choice of Treasury Secretary further inflates investor sentiment, and Wall Street seems to be on the verge of a new round of stock market gains. Carol Schleif, chief investment officer of BMO Family Office, said, "Bessent understands a lot of different asset classes and is going to help Trump stay very sensitive to market reactions."

At the same time, unlike the U.S. stock market rise under the previous Trump Trade, which was concentrated in specific sectors, the market rise on the 25th expanded. The market expects that under the Bessent Trade, the breadth of the U.S. stock market will increase, and in addition to large-cap stocks, small-cap stocks in the U.S. stock market are also expected to see a wave of gains. Tom Lee, head of research at U.S. investment institution Fundstrat Global Advisors, said that Bessent's expression of support for Trump's economic agenda will benefit smaller, domestically oriented U.S. companies. The Russell 2000 Small-Cap Index rose by 1.47% on Monday, marking its sixth consecutive trading day of increases, closing at a record high and breaking the record set in 2021.

The market also anticipates that Bessent's nomination will continue to be favorable for the U.S. bond market. Scott Spratt, a strategist at Société Générale Corporate & Investment Banking, also said: "The market view that Bessent is a 'safe hands' candidate, may see some relief rally in Treasuries from the open on Monday." He also expects that Bessent advocates for the phased implementation of certain policies, and believes that some of the policy levels currently discussed are too aggressive, which may also provide short-term support for the Asian foreign exchange market.