Trading Nation

Here’s what will drive the markets most as Trump’s term begins

What do the markets want from Trump?
What do the markets want from Trump?

The biggest market driver in the first weeks of the Trump administration will be just how efficiently it implements its plans, some strategists say.

The markets vacillated Friday around President Donald Trump's inauguration. Major U.S. equity markets opened and closed in the green but endured choppy trading throughout the session, falling during the inauguration speech. Trump struck an isolationist tone, declaring "America first" and saying "protection will lead to great prosperity and strength."

At approximately 20 minutes past noon, in the middle of Trump's speech, an investor appeared to sell 55,000 S&P 500 E-mini futures contracts (about $6 billion). Stocks neared lows of the trading session. The price of gold edged higher, at one point piercing the $1,214 level. And it appeared the rally U.S. equities had seen since Election Day — the "Trump rally" — was on shaky ground.

Over the next few weeks, the markets' performance will hinge on the Trump administration's success in carrying out promises like tax cuts and the repeal of the Affordable Care Act, according to Gina Sanchez, CEO of Chantico Global.

"After having a pretty strong rally, they've started to move sideways and are questioning what's going to happen, and so at this point we have to see Trump come in and start to execute on his plan," she said Friday on CNBC's "Trading Nation." "Now whether or not that's a good plan or not; I'm setting that aside. The point is that anything short of perfect execution is likely going to be a disappointment to the markets."

She added: "I think the first part of this year is going to be entirely emotionally driven and determined on execution — whether that execution is done quickly." Sanchez said the market has more room for downside because investors have priced in "a lot of expectation."

Much of investors' optimism surrounding Trump grew from his call for infrastructure spending, a notion Citigroup's head of North America economics William Lee in December largely dismissed as "fairy dust," suggesting the rally had gone too far, too fast. Trump on Friday did in fact promise infrastructure spending again. The S&P 500 materials sector closed the day as the best-performing sector.

The markets' expectations are high, said Larry McDonald, head of global macro strategy at ACG Analytics and editor of the Bear Traps Report financial newsletter.

"There's disconnect between [Fed Chair] Janet Yellen and the Fed and Trump. This past week we saw something very interesting. Yellen was talking the dollar up and Trump was talking the dollar down. That's highly unusual, so the market's going to be looking if there's a continuation of that disconnect," McDonald told "Trading Nation."

The U.S. dollar was weaker Friday against a basket of foreign currencies as investors took in Trump's remarks. The move was quite different than the dollar's rally after the election, rising nearly 4 percent in the month following Election Day.

McDonald believes there is also disagreement between Trump and congressional leadership on the timing of the repeal of the Affordable Care Act and the implementation of a new tax policy. He said the market will be looking for "cracks" in Trump's agenda over the next 60 days.

That could pose a problem for the markets, he said, "but most of all I think the market's just been moving toward expectation of information on trade, on health-care reform, and so far, we haven't had a disappointment."