What is the market worried about as the 'Trump deal' cools down?

After Trump's victory, the "Trump trade" gradually cooled down as investors began to doubt whether Trump would truly push forward his proposed radical tariff plans during his presidential term.

As of Thursday's close, the rapid surge of the dollar following the election has largely retraced, with the dollar index currently at 104.51. U.S. Treasury yields have also returned to their recent normal range after two days of volatility.

These market fluctuations indicate that investors are cautiously weighing whether Trump can deliver on his campaign promises. The market's focus is gradually shifting to other key factors, including the Federal Reserve's path of easing policies and potential fiscal stimulus measures from other countries.

Vishnu Varathan, Chief Economist and Strategist at Mizuho Bank in Singapore, stated:

"Even the most fervent Trump trade investors are taking a step back to consider: Is the current bet excessive? Traders are contemplating how to execute and effectively communicate some of his policies."

The market is quickly arbitraging while it can still lock in profits

Earlier this week, due to expectations that Trump's policies would stimulate inflation and keep interest rates high for a longer period, the "Trump trade," including bullish bets on the dollar and bearish bets on U.S. Treasuries, was active.

However, as time goes on, market sentiment regarding Trump's policies has gradually cooled. Assets under the "Trump trade" have essentially consolidated after his victory.

This is because, the market is quickly arbitraging while it can still lock in profits. Once Trump's economic plans are finalized, everything will change again. The reform measures he proposed could take the world's largest economy into uncharted territory.

Daniel Alpert, Managing Partner at Westwood Capital, stated:

"People don't want to miss the opportunity to profit, so they rush into the market, buying things that can be quickly sold before a market crash. This market is still very volatile. I believe that as the situation changes, these trades will see significant reversals."

Market concern: How likely are Trump's policies to become reality?

A key question in investors' minds is, to what extent can Trump's tariff threats become reality?

Alvin Tan, Head of Asian Foreign Exchange Strategy at RBC Capital, stated:

"Many people doubt whether Trump will truly implement his proposed policies, especially the tariff policies. However, this sentiment may be temporary, as the market underestimates Trump's trade policies—U.S. presidents have broad powers to impose import tariffs."

Analysts believe that if the Republican Party continues to control the U.S. House of Representatives, a decisive victory will pave the way for Trump's tax cuts, immigration, and trade policies. If Trump fulfills his campaign promises, the U.S. may face larger deficits and soaring inflation, with immigrant workers being deported, which could lead to a significant decline in economic growth.**

"What I least want to see is that his one-size-fits-all tariff policy really succeeds," Alpert said:

"If the Republicans take over, there will be absolutely no limits to the tariff policies that Trump can implement. If he really does this, the prices of domestic goods and some services will rise, while the employment situation will not improve overall."

"None of this is a good model for the future," pointed out Art Hogan, Chief Market Strategist at B Riley Wealth Management.

"But the future is not now."