Tariffs, TACOs, and dollars: global markets in a year of Trump 2.0

Highlights:

• Dollar has lost value broadly
• Stocks at record highs, AI boom roars
• Gold, bitcoin profit as investors seek non-dollar assets
• Bond yields rise on worries over government finances

In the year since Donald Trump's election as US president, global financial markets have had to navigate policy shocks and unprecedented uncertainty and high volatility, with stocks, gold and crypto hitting record highs.

After Trump defeated Democratic rival Kamala Harris on November 5, 2024, the dollar roared higher, along with stocks and bitcoin, while Treasury yields rose, as investors priced in the likelihood of greater strain on US finances.

Since then, the US administration has struck deals on trade, while upending global supply chains and decades of post-war international diplomacy.

Investors are learning to ride out the unpredictability, including clear ways to trade Trump's tendency to amp up threats only to later back down. The so-called TACO trade - "Trump always chickens out" - has become a feature.

Here is a snapshot of where major markets are now, compared to when Trump was elected.

UP THE BIT, DOWN THE GREEN

The dollar has offered the clearest reflection of how the rest of the world has reacted to Trump's erratic approach. It surged after the election, as investors bought into the idea that a Trump-fuelled spending splurge would fuel the economy, but it has lost a net 4% in value since then.

Trump's tariffs on trade partners and uncertainty over their impact have driven investors to find alternatives. His crypto-friendly policies, which have drawn scrutiny over unprecedented conflict of interest, have sent bitcoin to a record high of $125,835.92 in October. Geopolitical tensions and tariffs have also driven gold, a classic safe-haven, to a record $4,381 an ounce in October.

Demand for dollars is unlikely to wane any time soon as when financial market turbulence or geopolitics heats up, it is often investors' first choice, or "the cleanest dirty shirt", as Piotr Matys, senior FX analyst at In Touch Capital Markets, says.

CHECKING IN ON STOCKS

Stock markets everywhere have hit record highs this year, powered in large part by enthusiasm over artificial intelligence and the prospect of lower global interest rates.

Trump's April 2 "Liberation Day" tariff announcement was a first major test and it hit markets hard. The MSCI World Index tumbled 10%, but has since rebounded to record highs, gaining over 20% since Election Day.

The S&P 500 is up 17% since last November, thanks to AI fever, while in Europe, defense stocks have been at the heart of the rally, as Trump forced regional governments to spend more on their own security, while war rages in Ukraine. Tech-fueled rallies and a softer dollar have boosted equities in Japan, South Korea, and China too.

TESLA – AN ELECTRIC YO-YO

Trump's relationship with Elon Musk, the world's richest man, was a key driver of Tesla stock in the weeks after the election. Musk had spent over $250 million backing Trump's reelection bid last year and even joined his campaign trail.

Musk's fortune swelled, as shares in his EV maker almost doubled in less than two months to hit a record high of $488.5.

But the honeymoon did not last. After Musk launched Trump's budget-slashing Department of Government Efficiency (DOGE) in January, Tesla's brand loyalty rate dropped dramatically as the CEO's flirtation with politics spooked buyers, contributing to a drop in deliveries for two consecutive quarters.

Tesla shares hit a low in April before rebounding as tensions between Musk and Trump spilled into the open, culminating in a split by late May.

Despite the turbulence, the world's most valuable carmaker has outperformed struggling legacy rivals, including Detroit's GM, Ford and Stellantis.

BOND YIELDS RISE

Since Trump's election, bond yields have surged across major economies, reflecting investor concerns over rising government borrowing and the sustainability of public finances.

One of the concerns among investors in US Treasuries was the likely cost of funding Trump's planned tax cuts. His "One Big Beautiful Bill", which passed in July, is expected to increase the federal deficit by around $3.8 trillion in the coming 10 years.

However, with the Federal Reserve cutting rates and inflation seemingly contained, 30-year Treasury yields are up just 14 basis points at 4.66% since last November.

The rise in Japanese government bonds (JGB) has been more aggressive, with 30-year yields up nearly 85 basis points to record highs while French and German 30-year yields are up 62 and 59 bps, respectively, since November 5, 2024.

BALANCING TRADE

One of Trump's key areas of focus is the US trade balance, something he says is proof America is being "ripped off" by partner countries and that tariffs, aside from being "the most beautiful word in the dictionary" are the only way to correct it.

Trump's tariffs have driven up the cost of doing business and made planning more complicated. But they are eroding the trade deficit. The most recent data shows it hit a two-year low of $60.2 billion in June, and the deficit with China shrank by 70% over five months to its lowest level in over 21 years.

Similarly, the US-EU trade balance spiked ahead of the tariff announcement before declining. This suggests that "the trade war may be hurting the EU more than it does China," which has a stronger back-up plan than the Europeans, said Ipek Ozkardeskaya, a senior analyst with Swissquote.