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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

By Suzanne McGee and Lewis Krauskopf

NEW YORK, Jan 20 (Reuters) - Investors prepared to

welcome Donald Trump's second inauguration, anticipating

benefits from his pro-business agenda, while remaining wary of

his protectionist trade policies, particularly his stance on

tariffs.

Trump enters office with an ambitious agenda spanning trade

reform, immigration crackdowns, tax cuts and loosening

cryptocurrency regulation. Investment managers are adjusting

portfolios across asset classes, watching his inaugural address

for signals that could trigger near-term market moves.

"Uncertainty remains the watchword, with everyone alert for

answers to questions like whether the threat of tariffs will

become a reality or remain a negotiating ploy on day one," said

Sam Stovall, chief market strategist at CFRA Research.

But many hold out hope for a relatively muted response to

the new president's initial comments and actions.

"The Trump bark might be worse than the Trump bite in the

early going," said Michael Arone, chief investment officer at

State Street Global Advisors. He expects the timing and impact

of Trump's most significant policy changes to play out over a

longer time period.

Still, there is the potential that Trump's tariff plans

could further fan inflation fears that pressure bond and stock

prices, while efforts to tighten immigration controls could also

reverberate through those markets. Moves to ease regulation have

lifted bank stocks and sent cryptocurrencies soaring.

As they reported surging profits, Wall Street CEOs told

investors that the incoming U.S. administration would be

business-friendly and good for banks.

"Investors have been enthusiastic about the potential

loosening of regulations and possible reduction in corporate and

business income taxes," said Stovall.

The S&P 500's post-election rally has cooled to a 2.7% gain,

following a selloff in early January on inflation fears.

Trump plans to kick-start his presidency with a wave of

executive orders targeting key policy areas, including

immigration and energy.

The cryptocurrency industry expects Trump to fulfill his

"crypto president" campaign promises by creating a federal

bitcoin stockpile, expanding bank access and creating a crypto

council, Reuters previously reported.

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. The U.S. stock and bond

markets are closed on Monday for Martin Luther King Jr. Day, so

much of the trading reaction may not be evident until Tuesday.