Bitcoin loses momentum after Trump takes office

As U.S. President Donald Trump completes the first month of his new term, a range of assets are showing that investor enthusiasm for the so-called "Trump trade" is fading across the board.

From the S&P 500 index, which symbolizes the U.S. stock market, to the U.S. dollar, U.S. bonds, and even the frenzy of cryptocurrencies, they are now in a state of hesitation. Just over three months ago, investors were betting on Trump's deregulation, tax cuts, and U.S. isolationist policies, and U.S. stocks, the dollar, and Bitcoin soared, and U.S. bond yields also rose against the backdrop of renewed inflation.

As it turns out, as imagined Trump policies are gradually implemented, investors are returning to reality from fantasy.

(The S&P 500 index was crushed by European and Chinese stock indices, source: TradingView)

In the US stock market, the S&P 500 index rose 2.5% in the first month of Trump's presidency, and the Nasdaq index, which is dominated by technology stocks, rose 2.2%. In a horizontal comparison, the European stock market, which has been overshadowed by the US stock market for many years, performed significantly better, with the Stoxx 600 index rising more than 5%, setting a new record high. Of course, these two cannot be compared with the Chinese assets that are undergoing "revaluation".

The more noteworthy change is the reversal of small-cap stocks in the U.S. stock market. The day after the U.S. election last year, the Russell 2000 index, which represents small-cap stocks in the U.S., surged 5.8%, the largest single-day gain in nearly three years. Today, this small-cap index is only 1% higher than its closing price on November 5.

(Russell 2000 Index daily chart, source: TradingView)

From an investment logic perspective, small and medium-sized enterprises are more focused on domestic business and should have been the beneficiaries of the "America First" policy. However, Trump's reckless use of tariffs after taking office has not only caused concerns about rising inflation, but also cast a shadow on the future profit prospects of small and medium-sized enterprises in the United States, which already have weak pricing power.

(Source: MISH TALK)

At the same time, financial stocks and new energy industries fluctuated roughly in line with market expectations. Although the Trump administration seems to continue to adhere to a strict antitrust strategy, there is no change in relaxing financial regulation and supporting fossil fuels.

Another example of the fading "Trump trade" is the U.S. dollar. The dollar index rose roughly 6% from Election Day to before Trump's inauguration, but has fallen 2% over the past month.

(Source: TradingView)

The dollar lost momentum in part because traders overestimated the impact of Trump's tariffs on the dollar. That said, the U.S. president still brought a lot of volatility to the market. For example, after the announcement of the tariffs on Canada and Mexico, the Canadian dollar and the Mexican peso were hit, but the market trend quickly reversed after the tariffs were postponed.

Similar to the US dollar is US Treasury. After Trump's victory, there were many market voices saying that "US inflation is coming", and the yield on 10-year US Treasury bonds once rose rapidly by 60 basis points. But in the past month, Bessant's Ministry of Finance has made it clear that the scale of bond auctions will be kept stable in the short term, and the "Department of Government Efficiency" has made a big move to cut spending, which has eased market concerns about the federal deficit.

(Source: TradingView)

Gunnet Dhingra, head of U.S. interest rate strategy at BNP Paribas, said that before and after the U.S. election, the market saw a Trump trade driven by "bond vigilantes." But what happened after the inauguration was exactly the opposite, and the yield curve has been flattening.

The last one closely related to the "Trump deal" is Bitcoin, but there is no such thing as a "reversal" for this speculative asset. Since the US election last year, Bitcoin has soared from more than $70,000 to a record high of $100,000. However, in the past month, the crypto industry is still waiting for substantive policies to be implemented, so it has been fluctuating around $100,000.