Wall Street investors are betting heavily on a strong U.S. dollar during Trump’s second term, even as uncertainty looms over his proposed economic policies.

Since Trump’s election, U.S. stock markets have outperformed global competitors, rising 3%, while European, Japanese and Canadian markets remain stagnant at late-2022 levels. 

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Technology and financial sectors have also seen gains, buoyed by expectations of reduced regulation. However, industries seemingly aligned with Trump’s policy priorities have struggled. Despite his pro-drilling stance, energy stocks remain constrained by low oil prices.

Real estate has suffered from rising borrowing costs, while materials companies face headwinds from potential import tariffs.

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Market analysts and fund managers interviewed by The Economist expect new tariffs but remain uncertain about potential retaliatory measures from trading partners. While few anticipate massive deportations, concerns persist about inflation risks from stricter immigration policies. 

The federal deficit, currently at 6.4% of GDP, remains a worry despite hopes that fiscal conservatives in Congress and Trump’s economic team will maintain discipline.

As Wall Street braces for Inauguration Day, bond traders’ growing unease could force Trump to balance his ambitious economic agenda with the market forces that have historically constrained presidential power.

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