When president Donald Trump won back the Oval Office with a victory that blindsided half the country, Wall Street couldn’t hide its excitement.
The S&P 500 jumped 3% almost immediately after the election, and small-cap stocks tracked by the Russell 2000 skyrocketed nearly 5%. Stocks flourished. Borrowing costs for companies hit record lows.
Bitcoin and other speculative assets suddenly looked bulletproof. Relief rippled through the markets, but the real story began when Trump’s “America First” agenda started taking shape—and it was anything but calm.
Trump wasn’t wasting time. He filled his team with hardliners, signaling tariffs, massive deportations, and a ruthless agenda that economists warned could unravel inflation and deficit controls. Yet, the market, ever driven by its greed for profit, shrugged at the warnings.
While some sectors celebrated, cracks began forming under the surface, exposing the fractures between winners and losers in this chaotic economic experiment.
Winners: Financials, energy, and the fracking frenzy
Wall Street loves a good party, and for sectors like financial services and energy, Trump’s election felt like New Year’s Eve. The S&P 500 financials sub-index climbed 8%, while energy shot up 7%. The rally wasn’t just optimism—it was euphoria fueled by Trump’s promises of slashed corporate taxes and the rollback of Obama-era regulations.
For energy executives, it was a dream come true: federal lands opened up for fracking, the Paris Climate Agreement scrapped, and a renewed push for what Trump called “energy dominance.”
Chris Shipley from Fort Washington Investment Advisors backed the rally, saying the gains reflected rational market behavior. Investors piled into the Russell 2000, a small-cap index packed with domestically-focused financial stocks.
With the belief that smaller companies stood to gain more from corporate tax cuts, the Russell surged faster than the broader market. Goldman Sachs held its annual Vegas conference during the post-election glow.
Bankers, investors, and executives filled the Wynn Resort, buzzing with excitement over mergers and acquisitions (M&A) prospects. One hedge fund manager summed it up: “M&A is now a real possibility because of the new administration. The mood here is better than it’s been in years.”
Tax cuts weren’t the only thing exciting Wall Street. Deregulation was the main course, and investors couldn’t get enough. “The market thinks the administration will bring regulation to a more sensible place,” said Goldman’s CEO, David Solomon.
Many dismissed Trump’s harshest proposals—like tariffs—as mere bluster. But the highs were already kicking in.
Losers: Healthcare, government spending, and Treasury bonds
Not everyone got to join the Trump rally. Stocks linked to government spending cuts tanked, with Citi’s index for these companies dropping 8% post-election. Healthcare stocks were also bruised after Trump nominated vaccine skeptic Robert Kennedy Jr. to lead the health department.
The bond market, usually the first to sniff out trouble, showed real concern. Trump’s tariff proposals—10% on all imports and 60% on Chinese goods—set off inflation alarms. The $27 trillion Treasury market started shaking.
Yields on 10-year bonds rose to 4.4%, up by 0.8 percentage points since September. Rising yields meant trouble: higher borrowing costs for companies, increased mortgage rates (nearing 7% for a 30-year fixed), and fears of fiscal instability.
Even Walmart wasn’t immune. The retail giant warned it might need to hike prices if tariffs were implemented, reflecting the real-world costs of Trump’s trade war ambitions. Economists were spooked, too.
Former IMF chief economist Olivier Blanchard said Trump’s policies could cause the economy to overheat, with inflation roaring back, only to bring a slowdown later.
Deportations added fuel to the fire. Trump’s promise to remove millions of undocumented immigrants risked gutting the labor force. Economists agreed: fewer workers meant higher wages but less production. Businesses, already squeezed by inflation, would face even tougher challenges meeting demand.
International markets weren’t spared. Europe’s Stoxx 600 index slipped as investors bet the export-heavy region would take a hit from U.S. trade tensions. The euro fell to its lowest level against the dollar in two years, amplifying the pain for European exporters.
The risks of overheating and bond vigilantes
The Federal Reserve kept its poker face, refusing to comment on Trump’s policies until they were finalized. But investors didn’t wait. Futures markets adjusted quickly, pricing in less aggressive rate cuts than before. By the end of 2025, the Fed’s rates are expected to be around 4%, far higher than earlier predictions of sub-3%.
But inflation wasn’t the only worry. Servicing U.S. debt is becoming a monster. For the first time, America’s debt payments exceeded its defense budget. Kristina Hooper from Invesco called it unsustainable, warning of a potential financial disaster like the UK’s infamous “Liz Truss moment,” when unfunded tax cuts crashed the British bond market.
Franklin Templeton’s Sonal Desai warned that “bond vigilantes” could return. These are investors who punish governments with higher borrowing costs when fiscal policies spiral out of control. Desai said their reappearance would depend on the long-term implications of Trump’s economic plan.
Meanwhile, the stock market seemed unfazed. Investors brushed off inflation concerns, focusing instead on deregulation and short-term gains. “Inflation fears regarding tariffs are overblown,” Shipley argued, reflecting a sentiment shared by many on Wall Street.
But the cracks remain. Rising Treasury yields pose a major threat. Higher yields attract capital away from stocks, making equities less appealing. The longer this trend continues, the more pressure Wall Street will face.
The big question is whether Trump’s economic gamble can keep the markets hooked or if the hangover will come sooner than expected. As one strategist put it, “At some point, this ride stops. The only question is when.”
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