President Trump's Inaugural Focus on "America First" Gives Markets Pause

It’s official – President-elect Trump is now President Trump after Friday’s inaugural swearing-in ceremony. The event was jam-packed with the usual inauguration fanfare, but what the markets were nervously waiting for was Trump’s first speech as president. Judging from the initial negative reaction in US stock markets during and immediately after the inaugural address, investors were not overly impressed.

The primary message of Trump’s speech was that of putting America and the American people first when it comes to jobs, trade, defense, immigration and other key areas of his agenda. Trump also attacked the Washington DC government elite as he argued for giving power back to the American people. The most notable catchphrase Trump used was “America first,” along with “buy American and hire American.”

As a result of this focus, the speech took on a strong tone that appeared to extend even further Trump’s already-fervent protectionist stance when it comes to foreign trade and relations. This made the markets increasingly nervous, as Trump’s positions on international trade have been widely viewed as a likely negative for US economic growth in light of their potential to result in unproductive trade wars.

Another aspect of the speech that disappointed markets was Trump’s failure to touch on some of his key economic policy objectives that have been the primary catalyst for the Trump rally since the early-November election. While Trump did briefly mention increased infrastructure spending, he refrained from talking about two other key market issues – lower taxes and financial deregulation. These omissions are reminiscent of Trump’s press conference last week, when he also failed to reference these market-critical concerns.

US stock markets that had been rallying strongly prior to the inaugural address pared gains and dipped significantly during the speech as Trump’s protectionist focus became clearer. Immediately after the event, stocks continued to be weighed down in a trading range as the markets digested the contents of Trump’s speech.

As noted in previous analysis, the inauguration event itself was not likely to cause any great waves in the markets. However, the weeks ahead – further into Trump’s 100-day honeymoon period – should serve as the major test of the integrity of the Trump rally, as words begin to transform into action (or possible lack of action). As the new administration takes office, it should quickly become clear where policy priorities will be placed and how likely it will be that Trump’s economic agenda is fulfilled. During this crucial period, there will undoubtedly be many volatility-inducing dips and bumps as the Trump Administration’s path comes into clearer focus.