Investors prepared to welcome Donald Trump's second inauguration, anticipating benefits from his pro-business agenda, while remaining wary of his protectionist trade policies, particularly his stance on tariffs.

Trump enters office with an ambitious agenda spanning trade reform, immigration crackdowns, tax cuts and loosening cryptocurrency regulation. Investment managers are adjusting portfolios across asset classes, watching his inaugural address for signals that could trigger near-term market moves.
"Uncertainty remains the watchword, with everyone alert for answers to questions like whether the threat of tariffs will become a reality or remain a negotiating ploy on day one," said Sam Stovall, chief market strategist at CFRA Research.

But many hold out hope for a relatively muted response to the new president's initial comments and actions.

"The Trump bark might be worse than the Trump bite in the early going," said Michael Arone, chief investment officer at State Street Global Advisors. He expects the timing and impact of Trump's most significant policy changes to play out over a longer time period.

Still, there is the potential that Trump's tariff plans could further fan inflation fears that pressure bond and stock prices, while efforts to tighten immigration controls could also reverberate through those markets. Moves to ease regulation have lifted bank stocks and sent cryptocurrencies soaring.
As they reported surging profits, Wall Street CEOs told investors that the incoming US administration would be business-friendly and good for banks.

"Investors have been enthusiastic about the potential loosening of regulations and possible reduction in corporate and business income taxes," said Stovall.

The S&P 500's post-election rally has cooled to a 2.7% gain, following a selloff in early January on inflation fears.

Trump plans to kick-start his presidency with a wave of executive orders targeting key policy areas, including immigration and energy.

The cryptocurrency industry expects Trump to fulfil his "crypto president" campaign promises by creating a federal bitcoin stockpile, expanding bank access and creating a crypto council, Reuters previously reported.

During the first year of Trump's first administration, the S&P 500 rose 19.4%, following a 5% rally in his first 100 days in the Oval Office. During the entirety of Trump's first term, the S&P 500 rose nearly 68%, but markets saw bouts of volatility, stemming in part from a trade war Trump fought with China.

Following Trump's last inaugural address, in January 2017, the S&P 500 ended up 0.3% on the day. The US stock and bond markets are closed on Monday for Martin Luther King Jr. Day, so much of the trading reaction may not be evident until Tuesday.

The dollar drifted lower and global stocks were cautiously positive on Monday as investors awaited a flurry of policy announcements during the first hours of Donald Trump's second presidency and eyed a rate hike in Japan at the end of the week.

Trump takes the oath of office at noon Eastern Time (1700 GMT), and promised a "brand new day of American strength" at a rally on Sunday.

He has stoked expectations of an immediate slew of executive orders and, in a reminder of his unpredictability, launched a digital token on Friday, which soared above $70 before sliding to around $50 as traders turned uneasy.

Monday is a US holiday, so the first responses to his inauguration in financial markets may be felt in foreign exchange and then during Asian trade on Tuesday.

European stocks edged lower after an initial tick upward at the open. The pan-European STOXX 600 crept down 0.2%, with the region's main indices all flat and Spain's down 0.1%. MSCI's All-World index was last up 0.1%.

Eurozone bond yields inched upwards by 1223 GMT, with French and German 10-year benchmark bond yields all ticking up around one basis point. UK 10-year bond yields rose four basis points. Bond yields move inversely to prices.

"Trump dominates everything in terms of where we go," Societe Generale chief FX strategist Kit Juckes said in his morning note, referring to markets in general. He noted that trader positions betting on a rise in the dollar had reached their highest since 2022.

The dollar is up more than 8% against the euro since September and at $1.0317 is not far from last week's two-year high. But so much is priced in that some analysts feel sellers may step forward if the tariff hikes that Trump has flagged start more slowly than expected.

Trump has threatened tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products, duties that trade experts say would upend trade flows, raise costs and draw retaliation.

The Canadian dollar touched a five-year low of C$1.4465 per dollar on Monday.

Bitcoin shot up 4%, hitting, at one point, a record high of $108,943, while Trump's new cryptocurrency launched on Friday - known as $TRUMP - soared to nearly $12 billion in market value, drawing billions in trading volume. First Lady Melania Trump's cryptocurrency launched on Sunday hit a market cap of $1.9 billion.

China is in focus as the target of the harshest potential trade levies. Investors have cheered better-than-expected Chinese growth data and a Friday phone call between Trump and Chinese President Xi Jinping that left both upbeat.

Hong Kong's Hang Seng closed up 1.8% and China's yuan rallied.

"Basically everyone is waiting for these trade negotiations to begin and see what kind of attitude Xi Jinping takes with Trump," Ken Peng, head of Asia investment strategy at Citi Wealth told reporters in Singapore.

"That relationship between the two gentlemen has become very important as a leading indicator of policies." The yuan is seen likely to slowly adjust to any shifts in trade policy and touched a two-week high of 7.3088 to the dollar.

Japan's yen rallied last week as remarks from Bank of Japan policymakers were taken as hints that a rate cut is likely on Friday.

It was last slightly stronger at 156.335 per dollar and markets priced about an 80% chance of a 25 basis point rate hike.

Agencies