Did the market misjudge Trump in 2016, or is it right this time?

As Trump returns to the U.S. presidency, the market is generally focused on his four major policies: immigration control, tariffs, corporate tax cuts, and deregulation.

The market has begun to reflect the expectation of "Trump-style inflationary prosperity." The near two-year inflation breakeven has surged by 100 basis points over the past eight weeks, particularly in high-leverage sectors such as private equity, consumer discretionary, and biotechnology, which have shown an upward price trend.

However, Trump 2.0 still carries significant uncertainty. Wall Street Journal columnist James Mackintosh points out that the key to Trump's four major policies lies in what he truly intends to do, as well as the order and intensity of implementation. This will truly determine how the market develops in the future.

Looking back at the market's policy judgments following Trump's election in 2016, many investors were caught off guard due to excessive optimism. This time, has the market really understood Trump's "game"?

The key to Trump's four major policies lies in what he truly intends to do, as well as the order and intensity of implementation.

In 2016, after Trump's election victory, the market was initially filled with expectations for his tax cuts and deregulation policies. However, there was a significant gap between reality and expectations.

Trump did not immediately fulfill his economic promises; instead, he prioritized immigration restrictions and trade protection measures—policies that were not well-received by the market.

In 2017, he quickly took action to limit immigration from Muslim countries, withdrew from the Trans-Pacific Partnership, and renegotiated the North American Free Trade Agreement, measures that caught investors off guard and led to a lukewarm market response.

In contrast, the tax cuts that investors anticipated did not materialize until the end of that year, and the slower deregulation did not provide an immediate boost to the market.

Four years later, the market is once again looking forward to the four major policies that Trump may introduce: immigration control, tariffs, corporate tax cuts, and deregulation. However, these four policies also present a "good and bad dichotomy." Immigration restrictions and high tariffs may hurt the economy and drag down growth, while corporate tax cuts and reduced regulation could stimulate the economy and benefit the stock market.

Therefore, analyst James Mackintosh points out that the key to Trump's four major policies lies in what he truly intends to do, as well as the order and intensity of implementation. This will truly determine how the market develops in the future.

Currently, market sentiment is very optimistic, with investors focusing more on Trump's tax cuts and deregulation policies. Is the market underestimating the impact of immigration restrictions and trade protection?

Mackintosh notes that the current market has overlooked the negative effects of high tariffs and immigration restrictions on inflation and economic growth. Trump can quickly implement these measures through executive orders, while tax cuts and deregulation require congressional approval and legal processes, which carry significant uncertainty. In addition, it is unclear how their main policies will interact with each other. Immigration controls and increased tariffs may cause supply shocks that lead to inflation in the short term. However, in the long run, they will slow economic growth, thereby reducing stock and government bond yields.

"Worse still, we don't know how far his policies will go."

Stronger "Inflation Boom"

Bank of America strategist Michael Hartnett believes that the policies of Trump 2.0 could trigger a dual pattern of "American inflation boom" and "global deflationary recession."

In such an environment, Hartnett believes that selling U.S. Treasuries, going long on gold, and increasing holdings in inflation-sensitive assets may be wiser strategies:

• If the real yield on 10-year U.S. Treasuries falls below 2.5%, the 30-year yield exceeds 5%, and the short-term 2-year yield exceeds 4.5%, the market may see a turning point.
• The U.S. budget deficit will peak in 2025. If yields rise to 5%, he will be bullish on U.S. Treasuries.

• In high-leverage industries, assets in areas such as real estate trusts, small-cap stocks, banks, and biotechnology may have good development prospects.
• When other major countries in the world cut interest rates, it may be a good time to position