Tariffs, TACOs, and dollars: global markets in a year of Trump 2.0

Since Donald Trump's re-election in November 2024, global financial markets have navigated significant policy shifts, leading to high volatility and notable asset performance. The dollar initially surged but has since seen a net 4% decline, while Bitcoin and gold reached record highs, driven by Trump's crypto-friendly policies, geopolitical tensions, and tariffs. Global equities, including the MSCI World Index and S&P 500, achieved record highs, partly fueled by AI enthusiasm and increased defense spending in Europe. Bond yields rose across major economies due to concerns over government borrowing and fiscal policy, while Trump's tariffs contributed to a two-year low in the U.S. trade deficit, particularly with China.

Analysis

Following Donald Trump's re-election in November 2024, global financial markets experienced significant volatility, with an initial surge in the dollar, stocks, and Bitcoin, alongside rising Treasury yields. The dollar, however, has since seen a net 4% decline, reflecting investor navigation of policy shocks and unpredictability. This period has been characterized by record highs across various asset classes despite geopolitical tensions and trade policy shifts.

Bitcoin reached a record high of $125,835.92 in October, driven by Trump's crypto-friendly policies, while gold, a traditional safe-haven, also hit a record $4,381 an ounce due to geopolitical tensions and tariffs. Global equities, including the MSCI World Index and S&P 500, achieved record highs, with the S&P 500 up 17% since last November, largely fueled by enthusiasm for artificial intelligence and European defense spending. Bond yields surged across major economies, with 30-year Treasury yields up 14 basis points to 4.66%, reflecting concerns over increased government borrowing.

Trump's trade policies, including tariffs, contributed to a two-year low in the U.S. trade deficit at $60.2 billion in June, with the deficit with China shrinking by 70%. Tesla's stock experienced significant volatility, almost doubling to $488.5 post-election due to Elon Musk's political alignment, before dropping and then rebounding, ultimately outperforming legacy automakers like GM, Ford, and Stellantis. The "TACO trade" (Trump always chickens out) has become a recognized pattern for investors navigating his policy pronouncements.

Key Decisions for Investors

• Maintain diversified portfolios and consider hedging strategies given the persistent market volatility and policy unpredictability.
• Evaluate continued exposure to assets like Bitcoin and gold, which have demonstrated resilience and growth amid geopolitical tensions and specific policy support.
• Monitor the impact of trade policies on global supply chains and corporate earnings, particularly for companies with significant international exposure or those benefiting from domestic policy shifts like defense.
• Assess fixed income portfolios for sensitivity to rising bond yields, as government borrowing concerns and fiscal policy continue to influence interest rate movements across major economies.