Trump's First Day: Market Swings, US Stocks Close Higher, Safe-Haven Sentiment Rises

Trump's First Day: Market Swings, US Stocks Close Higher, Safe-Haven Sentiment RisesWall Street closely monitored whether Trump would deliver on his pro-business campaign promises, particularly calls for deregulation. Expectations of deregulation had already boosted bank stocks in November

Trump's First Day: Market Swings, US Stocks Close Higher, Safe-Haven Sentiment Rises

On January 21st, on his first day in office, newly inaugurated US President Trump signed a series of executive orders. The most market-sensitive was his mention of potentially imposing a 25% tariff on imports from Mexico and Canada starting February 1st. This immediately triggered sharp market volatility, putting pressure on the Mexican peso and Canadian dollar, and sending global financial markets into a cautious wait-and-see mode. However, Trump later stated he wasn't ready to implement comprehensive tariffs, a statement interpreted as a positive signal by Goldman Sachs and other institutions, suggesting the urgency of tariff imposition was lower than anticipated. European and US stock and bond markets rallied on the news, and market sentiment eased somewhat. Yet, multiple institutions remained cautious, citing the continued possibility of tariffs and closely monitoring potential retaliatory measures from Canada and Mexico. Safe-haven sentiment drove gold prices higher.

Market Volatility Driven by Trump's Policies

Trump's inaugural day statements on tariffs were milder than the market expected, alleviating some concerns. Alex Phillips, Goldman Sachs' chief US political economist, noted that tariffs don't appear to be a top priority for Trump at this time. Although Trump's stance on Canada and Mexico was tougher than anticipated, he reduced the likelihood of the US imposing widespread tariffs on all imports this year. This information quickly boosted market confidence, particularly easing trader concerns about a comprehensive tariff policy potentially reigniting inflation.

Wall Street closely monitored whether Trump would deliver on his pro-business campaign promises, particularly calls for deregulation. Expectations of deregulation had already boosted bank stocks in November. Other so-called "Trump trade" sectors, such as small-cap stocks, oil stocks, and Bitcoin, are highly sensitive to his administration's policies.

US Stock Market Reaction: Broad Gains with Individual Stock Divergence

Relieved by President Trump's more moderate-than-initially-expected pronouncements on international trade and first-day actions, Wall Street saw a broad market rally on Tuesday. However, the market wasn't uniformly buoyant; the Nasdaq Composite briefly dipped intraday, while small-cap stocks performed exceptionally well, with the Russell 2000 index rising over 1.1% at one point.

The S&P 500 closed up 52.58 points (0.88%) at 6049.24; the Dow Jones Industrial Average rose 537.98 points (1.24%) to 44025.81; the Nasdaq Composite gained 126.58 points (0.64%) to 19756.78; the Nasdaq 100 increased by 0.58%; the Nasdaq Technology Market Cap Weighted Index (NDXTMC) rose 0.57%; the Russell 2000 small-cap index, more sensitive to economic cycles, jumped 1.85%; and the VIX volatility index, a measure of market fear, fell 4.74% to 15.06. All major indices closed higher, with small-cap stocks and the Dow leading the gains, while the Nasdaq lagged. US stock sector ETFs generally closed higher, with the Biotech ETF up 2.6%, the Global Airlines ETF up 2.37%, the Semiconductor ETF up 1.6%, Regional Bank and Banking ETFs up at least 1.1%, the Technology sector ETF up over 0.8%, the Consumer Discretionary ETF up over 0.7%, while the Energy sector ETF fell over 0.5%.

The "Magnificent Seven" tech stocks saw mixed results: Nvidia rose 2.27%, Amazon gained 2.11%, Alphabet (Google) increased by 1.05%, Meta was up 0.6%, Microsoft fell 0.12%, Tesla dropped 0.57%, and Apple declined 3.19%. Jefferies downgraded Apple's rating from "Neutral" to "Underperform" and issued a rare sell rating, warning that Apple's revenue might disappoint investors. Loop Capital downgraded Apple to Hold, reducing its price target from $275 to $230. The market generally attributed Apple's decline to weak iPhone sales and AI failing to act as an expected growth catalyst.

Meta is preparing to launch Oakley-branded smart glasses this year and is developing watch and AirPods competitors. Chip stocks generally rose, with the Philadelphia Semiconductor Index closing up 1.29%; the ProShares UltraPro Semiconductor ETF (SMDV) climbed 4.37%; NanoSemi rose 9.2%; Wolfspeed was flat; TSMC ADR gained 3.4%; Micron Technology increased 3.43%; Qualcomm rose 1.65%; Arm Holdings gained 3.98%; KLA Corporation was up 1.29%; AMD rose 0.68%; ON Semiconductor gained 1.79%; Broadcom increased 1.21%; Intel rose 1.3%; and ASML Holding ADR gained 0.88%.

AI-related stocks generally rose, with SoundHoundAI (in which Nvidia holds shares) up 21.11%, BigBear.ai up 12.5%, BullFrogAI up 10.38%, Salesforce up 0.7%, Palantir up 1.81%, ServeRobotics up 6.3%, and CrowdStrike up 2.64%. AMD rose 5.29%, C3.ai gained 2.5%, Dell Technologies increased 1.74%, and AppLovin fell 1.15%. Oracle jumped 7.17%, linked to Trump's announced AI infrastructure investment plan and the planned joint venture called Stargate between OpenAI, SoftBank Japan, and Oracle. SoftBank Group ADR rose 4.1%.

Mixed Performance for Chinese Stocks

Chinese stocks saw mixed results, with the Nasdaq Golden Dragon China Index closing down 0.36% at 6751.48. Among ETFs, the Direxion Daily FTSE China Bull 3x Shares (YINN) rose 3.14%, the Invesco China Technology ETF (CQQQ) gained 1.4%, and the KraneShares CSI China Internet ETF (KWEB) rose 0.48%. The FTSE A50 futures contract closed down 0.32% at 12920.000 during the overnight session. Among popular Chinese stocks, XPeng rose 6.2%, Li Auto gained 5.6%, Baidu increased 1.1%, NetEase and Yum China rose about 1%, B Station fell 2.3%, NIO dropped 3.9%, and New Oriental fell 23%. Pinduoduo fell 1.35%, Tencent Holdings fell 0.22%, and Fangdd fell 0.0%. NIO, XPeng, and Li Auto are all competing in the AI space; NIO is researching a robot dog project, led by Xu Kang from the company's autonomous driving team. New Oriental's adjusted earnings per ADS for Q2 were $0.22, below expectations.

Other Key Stocks and Industry News

Executives at AI training company iLearningEngines were sued by shareholders, and the stock price fell 15%. Short-seller Hindenburg alleged that the educational software company's revenue depended on an undisclosed related party. The company reported $138 million in revenue from its key Indian market in 2022, but the actual figure was only $853,000 99% less than reported.

New Mexico will unveil plans for its quantum computing industry strategy. Quantinuum, a Honeywell International subsidiary, will receive an $800 million investment and will be an early recipient of funds under the state's quantum initiative. Honeywell rose 1.12%.

United Airlines rose over 4% after hours, with adjusted EPS, revenue, passenger revenue per available seat mile (PRASM), and available seat miles (ASMs) exceeding expectations in Q4.

Netflix's Q4 subscriber growth significantly exceeded expectations, leading to an upward revision of its 2025 outlook, and the stock price rose over 14% after hours to a new high.

Intel rose over 5% pre-market, fueled by rumors it was a takeover target, with Elon Musk reportedly considered a potential buyer. Industrial giant 3M surged over 6%, its biggest gain in nearly six months, and Charles Schwab rose nearly 6%, both due to better-than-expected Q4 results.

European Market Performance

European markets closed slightly higher on Tuesday as investors digested Trump's first executive orders. Sectors and major indices showed mixed results, with German and UK markets hitting new closing highs, and the Danish index rebounding 2.5%. The pan-European STOXX 600 index closed up 0.40% at 515.98; the Euro STOXX 50 rose 0.03%; and the FTSE Eurofirst 300 gained 0.37%.

Among the more volatile stocks, rsted, a Danish renewable energy company, fell 10.73% following US President Trump's announcement that he would