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There is a bit of a "Trump bump" in effect in the equity futures trade this morning. This bump follows yesterday's inauguration, and while the entire Trump administration has yet to take office (still waiting for confirmation of many key Cabinet members), President Trump has and he wasted no time with a slate of executive orders that unwound a lot of the Biden administration's policies.
There were too many to cover here, but it is now known that he has declared a national energy emergency that will provide for increased oil and gas production, that the U.S. will be withdrawing from the World Health Organization and Paris Climate Agreement, that prior commitments made on behalf of the United States with respect to the Global Tax Deal have no force or effect within the United States, and that there won't be any action to enforce the TikTok ban for 75 days.
What was missing in yesterday's executive orders, however, was any declaration of a decisive tariff action against China. Instead, President Trump said existing trade agreements should be reviewed for any recommended revisions. Later, though, he said he is thinking in terms of 25% tariffs for Canada and Mexico starting February 1.
The latter took a little steam out of the equity futures trade, but it didn't steamroll that trade.
Currently, the S&P 500 futures are up 30 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 130 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 197 points and are trading 0.4% above fair value.
A positive bias remained intact, helped by better-than-expected earnings reports from Dow component 3M (MMM) and homebuilder D.R. Horton (DHI), Chinese President Xi Jinping repeating that a more proactive macroeconomic policy will be sought in 2025, and gains in many of the mega-cap stocks.
Apple (AAPL) is the outlier. It is down 2.0% in pre-market trading following downgrades at Jefferies and Loop Capital, and a Bloomberg report suggesting iPhone sales dropped 18% in China in the December quarter.
The biggest source of support for the equity futures market, though, may just be the Treasury market. It has remained calm and has carried on with the recovery effort that kicked in following the better-than-feared Consumer Price Index for December.
The 2-yr note yield is down two basis points to 4.25% and the 10-yr note yield is down five basis points to 4.56%.
The move in the 10-yr note is the most helpful in terms of sentiment, because the 10-yr is more sensitive to inflation pressures that have the potential to increase with tariff actions. There is a debate along academic and political lines as to whether tariffs will drive up inflation.
In a nutshell, the Trump administration doesn't agree with the tariff/inflation view espoused by many academics and economists. Rest assured, though, the Treasury market will be the arbiter of this debate, which promises to heat up as tariff plans get enacted and incoming data provide the proof -- or lack thereof -- on inflation views.
