Published February 21, 2025
Thus far in 2025, investors have wrestled with a blizzard of information as the new presidential administration takes control and outlines their policy priorities. One month into the Trump Administration, let’s see how markets have responded.
Interest Rates: While Trump has noted a preference for lower interest rates as part of his growth-focused economic agenda, he has not yet made any notable forays into trying to heavily influence rates. In his prior administration, Trump was repeatedly at odds with the Federal Reserve. At some point, we expect this battle will resume. For now, the Fed has reiterated a wait-and-see approach while generally backing off their rate-reduction stance of last Fall. As the chart shows, December saw rates rise when the Fed walked back their 2025 rate reductions. Rates have since pulled back despite some reports of higher-than-expected inflation. Investors have seen a softer approach to tariff implementation than projected, removing a primary driver for higher rates. Interest rates now are about where they were a year ago as the rate reductions have been largely taken off the table.
Domestic Stocks: The Trump Team is very focused on driving stronger economic growth. Investors have been betting that 2025 would see a rebound general risk-taking as regulations are cut back, interest rates reduced, and the Trump Administration’s focus on growth takes hold. Nowhere has this sentiment been more on display than in the fortunes of asset management companies who benefit from mergers & acquisitions, IPO activity, and a freer flow of money.
While asset managers are a bright spot in the stock market, the overall market has been less impressive. The broader stock market indexes, driven by growth-oriented stocks, have largely overcome the December interest rate concerns and continued their general uptrend.
But the riskier, more interest-rate sensitive sectors have seen their post-election boom fade quickly.
International Stocks: The most surprising development has been the rise of international stocks. The focus of the Administration’s tariff rhetoric – China & Mexico – have seen their stock markets outperform while European stocks just recently hit new highs.
Over the first six weeks of the year, stocks have endured an unusually large amount of new information as the Trump Administration has come into office with a bang, as promised. So far, Mr. Market has surprised investors, as is often the case. Domestic stocks delivered relatively little return in the usually-strong fourth quarter. International stocks have seemingly benefitted from the shift in administration (in part due to a pull back in the U.S. dollar). Caution has been the watchword as investors digest all the twists and turns of the new administration and wait to see how things settle out.
Market Update
Investors came back from the President’s Day holiday to a flat stock market result Tuesday. There was little movement again Wednesday despite new tariff threats from President Trump and minutes from the most recent Fed meeting reiterating a cautious outlook. The S&P 500 managed to eke out a record close with a +0.2% move. Stocks fell back Thursday when consumer retail bellwether Walmart posted strong earnings but offered a very cautious outlook. The company said that revenue would fall in coming quarters as they see consumer buying weakening. This announcement confirmed the weak retail sales report issued in January. Stocks slipped a modest -0.5%. However, the selling accelerated Friday with stocks posting their worst loss of the new year – a -1.7% slide. Concerns about a weakening economy combined with a report that the Justice Department will be reviewing United Healthcare’s billing and diagnostic practices to send stocks notably lower.
Friday’s loss left markets with a loss for the week. The S&P 500 (SPY) fell -1.60% for the week while the Nasdaq 100 (QQQ) slid -2.24%. Small-cap stocks (IWM) suffered the biggest hit despite a pullback in interest rates. The index tumbled -3.62% to rest at its long-term 200-day moving average, its second visit to that reference point already this year.
Warm wishes and until next week.