The stock market rose today, buoyed by the fact that President Donald Trump didn't raise tariffs on Day #1 of his second term as was widely expected. Instead, he will be raising them on Canada and Mexico on Day #13 (February 1). That's what he said Monday evening. Stocks also got a boost when Trump announced today that Softbank, OpenAI, and Oracle are forming a $100 billion joint venture to fund AI infrastructure. After the market close, Trump said his team is talking about a 10% tariff on China, not 60% as he had been saying when he was on the campaign trail.
Meanwhile, the price of a barrel of Brent crude oil dropped 3.3% since January 15 because, as expected, Trump signed lots of executive orders on Day #1 to enable more oil and gas production in the US.
The dollar edged down on Monday following the unexpected delay in tariffs (chart). However, it should rebound if foreign investors continue to be significant buyers of US bonds and stocks, as we expect. They and domestic investors have less to fear right now about monetary policy and inflation in the US. In addition, a US debt crisis doesn't seem to be imminent. Nor does a spike in oil prices caused by a geopolitical crisis.
These have all been concerns hanging over the market in recent weeks. They did cause a pullback in the stock market since early December, as we expected. However, now the path of least resistance is up, especially if the Q4-2024 earnings reporting season continues to go as well as we expect, with a gain of 12.0% y/y.
We also expect that foreign investors will continue to pour funds into the US capital markets. Consider the following:
