Historical data shows that the U.S. stock index has exhibited a downward trend around the inauguration of the new president. NH Investment & Securities noted on the 14th that if adjustments get too large ahead of Donald Trump's inauguration as U.S. president, it might actually present an opportunity to purchase policy beneficiaries.

According to Research Institute Jo Yeon-joo from NH Investment & Securities, the large-cap Standard & Poor's (S&P) 500 index fell about 4.2% from last month's peak. With Trump's second administration set to begin on the 20th, concerns grew about rising prices due to policy uncertainty, which significantly impacted the market. As a result, expectations for interest rate cuts also receded.

Illustration = ChatGPT DALL-E 3

Since President Richard Nixon in 1969, the U.S. stock index has generally shown weakness from 20 days before the inauguration of a new president until one month after. The U.S. policy uncertainty index also peaked 10 days before the inauguration and has been declining for 30 days post-inauguration.

Considering this, Research Institute Jo predicted that volatility in the U.S. stock market could increase temporarily around President Trump's inauguration, but it is expected to stabilize gradually as uncertainties are resolved. He remarked, “Historically, the stock index fell and then rebounded around the time of Trump's first administration's launch,” and added, “If the fear factor around the inauguration becomes excessive, it could present a buying opportunity in the U.S. stock market.”

He further stated, “Considering the replacement of financial institution heads in Trump’s second administration, along with the relaxation of regulations on artificial intelligence (AI) and energy corporations, the finance and tech sectors are expected to benefit.”

The main reason the U.S. stock index gradually stabilized after the president's inauguration is due to the convention of leniency from the media and Congress during the first 100 days (FHD·First Hundred Days) following the new president's inauguration. In a broader view, this honeymoon period is considered to last until early July, when Congress goes on recess. During this period, the new president accelerates key policy initiatives.

President-elect Trump presented several key policies to be implemented swiftly during the honeymoon period, including strengthening the southern border, expanding oil production, tax cuts, and increasing tariffs.

Research Institute Jo expects that Trump's second administration will fundamentally focus on controlling inflation and stimulating domestic demand until the budget deadline for the 2025 fiscal year (October 2024 - September 2025) on March 15. The administration aims to induce lower oil prices through increased oil production and prioritize new tax cuts by reducing unnecessary expenditures. Excessive foreign policy that could lead to inflation can be postponed until after the honeymoon period.

Illustration = ChatGPT DALL-E 3

However, it cannot be ruled out that Trump's second administration may implement stronger tariff policies during the honeymoon period. Previously, President-elect Trump declared a national economic emergency and announced his intention to impose universal tariffs under the International Emergency Economic Powers Act (IEEPA).

The IEEPA differs from the tariff increases under Section 232 of the Trade Expansion Act during Trump's first administration in 2018. The IEEPA can only be invoked if it is determined to pose a threat to national security, while the Trade Expansion Act allows for economic sanctions even on mere possibilities. Furthermore, the IEEPA requires the president to report on related matters to Congress every two years for review, while the Trade Expansion Act does not carry such a burden.

From the president's perspective, the Trade Expansion Act is an easier method since it does not require reporting obligations even if tariffs are raised and is easier to prove security threats. Nevertheless, Research Institute Jo pointed out that the reason President-elect Trump opted for the IEEPA instead of the Trade Expansion Act is that “it allows for tariff increases on all countries and products, making it more challenging for Congress to reverse the decision due to Supreme Court precedents even after the administration changes.”

If President Trump invokes the IEEPA during the honeymoon period, it could lead to the worst-case scenario of prolonged universal tariffs, according to Research Institute Jo. In the past, the IEEPA has been invoked 54 times, of which 29 cases are still ongoing. The first invocation was by former President Jimmy Carter in 1979, who imposed economic sanctions on Iran, which had taken American embassy personnel hostage, and that action remains in effect as a representative case.

Research Institute Jo stated, “If a trade war is triggered by invoking the IEEPA, the global economy could enter a new phase.”