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Investors cautious of Trump's protectionist trade policies

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Wall Street optimistic about Trump's pro-business stance

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S&P 500 rose 19.4% in Trump's first year

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Markets closed Monday for Martin Luther King Jr. Day

(Updates paragraphs 2-11 with Trump's speech)

By Suzanne McGee and Saeed Azhar

NEW YORK, Jan 20 (Reuters) - Investors welcomed Donald

Trump's second inauguration on Monday, saying it heralded a

pro-business agenda and that they were relieved that

protectionist trade policies may be implemented more

methodically than many had feared.

Trump enters office with an ambitious agenda spanning trade

reform, immigration, tax cuts and deregulation which has the

potential to boost U.S. corporate profits but which could also

reignite inflation, pressuring stocks and bonds and forcing the

Federal Reserve to increase borrowing rates.

In his inaugural speech on Monday, Trump pledged to bolster

the U.S. oil, gas and power industries, to crack down on

immigration and repeated his intention to collect "massive

amounts" of tariffs. Investors, who are adjusting portfolios

across asset classes, said they remain watchful, awaiting signs

of how those initiatives will be implemented.

"Most of what he has been talking about will help spur

growth and corporate profits," said Jack Ablin, chief investment

officer at Cresset Capital.

"But many will come at a cost. We will need to see a lot of

earnings growth to make up for even a minor increase in interest

rates that could follow higher tariffs" and other proposals, he

said.

Despite talking up his planned tariffs, Trump stopped short

of taking aggressive tariff action in his initial hours in

office, which had been a key concern of many investors, sparking

a relief rally in global stocks, while other major currencies

rallied against the dollar. Instead, Trump will issue a broad

trade memo on Monday that directs federal agencies to evaluate

U.S. trade relations with China, Canada and Mexico.

"The biggest reaction is what appears to be the delay on the

tariffs. Of all the proposals that are being put forward, that

was the one that was most likely to affect the market," said

Rick Meckler, a partner at Cherry Lane Investments in New

Jersey.

"When you say you're going to study and try to negotiate it

after you said that you will do it on Day One, I think that's

encouraging for the market."

Stock futures traded higher following the inauguration, with

contracts on the Standard & Poor's 500 index up around 0.4% by

late in the day, while the dollar fell and the peso gained

slightly. U.S. exchanges were closed for trading in honor of the

Martin Luther King Jr. holiday.

During his election campaign, Trump vowed to impose steep

tariffs of 10% to 20% on global imports into the U.S. and 60% on

goods from China, but investors said the signs on Monday were

that the new administration would take a more measured approach.

"It is far too soon to declare that the worst of the tariff

threat has passed. But certainly, Day One has gone much better

for international trade than most had feared," Chris Turner,

global head of markets at ING, wrote in a note.

DEREGULATION PROMISE

Elsewhere in the market, Trump's promise to ease regulation

has lifted bank stocks and sent cryptocurrencies soaring.

As they reported surging profits, Wall Street CEOs told

investors this month that the incoming U.S. administration would

be business-friendly and good for banks.

The cryptocurrency industry expects Trump to fulfill his

"crypto president" campaign promises by creating a federal

bitcoin stockpile, providing crypto companies access to banking

services, and creating a crypto council, Reuters previously

reported.

Trump also launched a branded cryptocurrency which soared on

Monday to more than $8 billion in market value, raising ethics

questions.

In the aftermath of Trump's Monday speech, the price of

bitcoin remained below its overnight high of $107,000, at about

$104,000, as the market anxiously awaited specific

cryptocurrency announcements.

During the first year of Trump's first administration, the

S&P 500 rose 19.4%, following a 5% rally in his first 100 days

in the Oval Office. During the entirety of Trump's first term,

the S&P 500 rose nearly 68%, but markets saw bouts of

volatility, stemming in part from a trade war Trump fought with

China.

Following Trump's last inaugural address, in January 2017,

the S&P 500 ended up 0.3% on the day. Due to the holiday, the

trading reaction this time will not be evident until Tuesday.

Some investors said they were still in wait-and-see mode.

"The big question on investors' minds right now is going to

be 'how' -- how will he cut costs and lower inflation and lower

interest rates," said Josh Strange, president of Good Life

Financial Advisors of NoVA, a financial advisory firm.