Dollar Falls as Treasury Pick Tempers Trump Bets: Markets Wrap

(Bloomberg) — Stocks and Treasuries rose as traders welcomed Donald Trump’s pick of Scott Bessent for US Treasury Secretary, betting the hedge fund manager will bring a Wall Street mindset to the role and soften the returning president’s support for sweeping tax cuts and trade tariffs.

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US equity futures gained at least 0.5% while the yield on 10-year Treasuries dropped five basis points to 4.35%. The dollar declined while Bitcoin rebounded from a weekend drop.

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The market moves mark a reversal of some elements that define the so-called Trump Trade, including a surging dollar and rallying Bitcoin. The cooling enthusiasm about these assets comes as traders trim expectations for the president-elect to lower taxes and boosts tariffs, policies that may keep interest rates elevated and support the greenback.

Bessent’s nomination has eased concerns over the incoming president’s inflationary agenda, which had sparked a selloff in government bonds that drove the benchmark Treasury yield to a four-month high. The Key Square Group hedge fund manager has indicated he’ll back Trump’s tariff and tax cut plans but investors expect him to prioritize economic and market stability.

“Markets can now map a road ahead for policies,” said Colin Graham, head of multi-asset strategies at Robeco, who’s positions are overweight on both US stocks and Treasuries. Bessent is “seen as more moderate on tariffs so could be perceived as bond positive.”

The “secret sauce” for the S&P 500 is a decrease in bond yields, Bank of America Corp. strategists said on Friday. US stock funds are set to attract record inflows this year, annualized at $448 billion, on the prospect of Federal Reserve rate cuts while the economy continues to grow at a healthy clip. The main US equity gauge has already rallied 25% in 2024.

RBC Capital Markets strategist Lori Calvasina tipped the S&P 500 to reach the 6,600 level by the end of 2025, an advance of about 11%, propelled by solid economic and earnings growth.

By contrast, a surge in bond yields would sink stock-market buoyancy and high valuations, according to Plurimi Wealth Management Group Chief Investment Officer Patrick Armstrong.