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(Bloomberg) — After an initial stampede into “Trump Trades,” investors in some asset classes are tapering their enthusiasm as they question whether Donald Trump will push through his ambitious tariff proposals as US president.
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The dollar reversed much of its post-election surge by Thursday’s close, and is edging higher on Friday. Treasury yields have also returned to recent ranges following a two-day whipsaw. Chinese stocks and the yuan, earlier hurt by concerns over higher tariffs, have been swayed more by expectations of further stimulus from Beijing.
The moves point to the potential for volatility as investors weigh whether Trump’s policies will match his promises on the campaign trail. As the market jolt subsides, focus is turning to other big events: the Federal Reserve’s easing path and China’s expected fiscal stimulus.
“There’s a sense that even the most exuberant Trump Trade investors are taking a step back to think: at this point, are the bets overdone?,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. Traders are “thinking about the execution and how some of his policies can be transmitted effectively.”
A key question on investors’ minds is how much of Trump’s threatened tariffs — up to 60% on Chinese goods — will become a reality. Some are also taking profit on trades, including bullish dollar and bearish Treasury wagers, that fared spectacularly well earlier this week on the expectation that Trump’s policies will spur inflation and keep rates higher for longer.
As doubts start to creep in, assets seen as benefiting under Trump have largely moved sideways after the post-election pop. US stocks have been an exception, extending gains Thursday on speculation the new administration will be supportive for the nation’s companies.
Bitcoin has been little changed since surging to a record thanks to the president-elect’s pro-crypto stance. Bloomberg’s dollar gauge was up around 0.1% on Friday. The 10-year Treasury yield held at 4.33%, after the Fed’s rate cut helped pare some of Wednesday’s surge.
Yet the trades may regain momentum, according to RBC Capital Markets. The euro, an asset sensitive to Trump tariff risk, fell 0.2% in early London trading Friday after advancing 0.7% on Thursday.
If the Republicans keep control of the US House, with the final counting still underway, the resulting sweep will smooth the path for Trump’s tax cuts, immigration and trade policies, as well as a confirmation of his nominees.