(Bloomberg) — One trading day into Donald Trump’s second term and it’s clear the stock market has a new driver, at least for now. Share prices rallied Tuesday, with gains largely generated by one thing the president didn’t do: enact sweeping tariffs on major trading partners.
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The unexpected lack of action — Trump had long promised levies of as much as 60% on Chinese goods and almost half that on Mexican and Canadian products on Day 1 — sent Treasury yields tumbling and the S&P 500 Index climbing as much as 1.2% before fading slightly. The small-capitalization Russell 2000 Index surged 1.6% as a risk-on vibe captivated traders.
The tariff reprieve looks like it will last at least another week, though, as traders were reminded Monday, market-moving pronouncements from Trump can come at any time. The new president unleashed a barrage of executive orders after being sworn in Monday, moving companies in sectors as varied as electric vehicles, private prison operators and space exploration. Big tech shares got a jolt at midsession after a White House official teased an pending announcement on AI spending.
Taken together, it was a stark reminder that Trump intends to play a visible role in American business and finance, with an almost unique ability to send markets careening based on an odd comment or social media post. The stock market’s measure of volatility was subdued Tuesday, but traders largely expect Trump’s leadership style to provide a frequent scramble to keep up with policy proclamations.
Any president “influences the stock market, and I think what we learned from his first term is that President Trump does so more than most,” said Steve Sosnick, chief strategist at Interactive Brokers, adding that Trump sees markets “more explicitly” as a key indicator of how he’s doing. “During his prior term, those of us in the markets got very accustomed to a wide range of commentary if not policy announcements that could come at any given time at any given subject.”
Investors are closely watching further moves from the administration to assess their affect on markets. JPMorgan Chase & Co. is establishing a “war room” for just this purpose. Exactly how the policy proposals will play out isn’t clear yet. For example, shares of companies with tariff risks are largely shrugging off the threats for now.