How Markets Are Reacting to Trump’s Stance on Immigration, Inflation, and Energy?

TradingKey - On his first day in office, Donald Trump signed executive orders on immigration and energy policies but refrained from announcing tariffs on major trade partners. U.S. stock futures broadly rose, while the dollar index declined during his speech.

Immigration Takes Center Stage

On Monday, Trump declared immigration a national emergency and announced plans to deploy troops to the southern border. He also shut down a key immigration pathway established during the Biden administration, which had allowed up to 30,000 migrants from Cuba, Haiti, Nicaragua, and Venezuela to fly to the U.S. under a sponsorship program.

Other immigration-related actions had immediate effects. For example, the government app CBP One, which allowed migrants to legally enter the U.S. and apply for work eligibility, was shut down, and existing appointments made through the app were canceled.

Illegal border crossings had dropped sharply in recent months after the Biden administration set daily limits on the number of asylum seekers. However, Republican lawmakers argue that millions of migrants crossed the border illegally during Biden’s presidency, necessitating mass deportations. TradingKey analyst Jason Tang noted that deporting undocumented immigrants could tighten the labor market and reduce unemployment. However, since undocumented immigrants account for only about 5% of the U.S. labor force, the overall impact on unemployment is likely to be limited.

Source: FT

Tackling Inflation

Trump attributed inflation not to deportations but to rising crude oil prices. To combat inflation and prevent its resurgence, he proposed increasing oil and gas production, reviving his slogan “drill baby, drill.”

On his first day in office, Trump instructed his Cabinet to fight inflation and declared a national energy emergency under the Energy XLE framework to address the “inflation crisis” caused by rising energy prices. However, analysts expect it will take time for Trump’s energy-related measures to have a tangible impact.

Although Trump refrained from announcing new tariffs during his speech, he hinted at the possibility of imposing 25% tariffs on Mexico and Canada starting February 1.

Looking ahead, mass deportations of undocumented immigrants and high tariffs could act as inflationary pressures. However, reforms in the energy sector may play a positive role in curbing inflation. According to Tang, as seen during Trump’s first term, the inflationary impact in Trump’s second term, even with the risk of reflation, is likely to remain manageable.

Trump’s Meme Coin Surges

As Trump expands his support for cryptocurrency, many anticipate a “golden era” for the industry under his administration. Grzegorz Drozdz, a market analyst at Conotoxia Ltd., stated that the cryptocurrency market had gained additional momentum in recent hours due to the launch of Trump and Melania’s tokens ahead of the inauguration. Trump’s “meme coin” launched Friday, rising from under $10 to $74.59 by Saturday before paring gains on Monday.

According to Reuters, the cryptocurrency group IBIT has lobbied for executive orders in Trump’s first 100 days to establish a U.S. Bitcoin reserve, secure banking access, and create a crypto advisory council. While the industry anticipated at least one order on Monday, no major announcements came, aside from volatility in Trump and the First Lady’s tokens.

What Does This Mean for Investors?

Trump’s policies have already given rise to a “Trump trade,” which Tang expects to continue driving U.S. stock markets, Treasury yields, and the dollar index higher in the short term (0–3 months). Over the medium term (3–12 months), the impact of the Trump trade may fade as the Federal Reserve’s rate cuts regain dominance in shaping market trends. While equity markets could continue to rise, Treasury yields and the dollar index may retreat. In the long term (beyond one year), U.S. equity returns will heavily depend on the implementation of Trump’s policies and broader macroeconomic conditions.

Matthew Dibb, Chief Investment Officer at cryptocurrency asset management firm Astronaut Capital, said:  "The market has some great expectations about a bitcoin strategic reserve and a loosening of regulations around digital assets, but it's more likely these developments will be drip-fed over a series of months rather than days." Moreover, an analyst stated in an interview that Bitcoin could either surge to a record high above $125,000 or drop to $77,000 in the first quarter, depending on whether Trump delivers on his promises to the cryptocurrency industry after taking office.