As President Donald Trump returns to the White House following his election, American investors are preparing for a series of changes in 2025. These changes include tariffs, deregulation, and tax policies.
According to Reuters, the shift in power in Washington is expected to have significant impacts on the stock market, bond market, and currency markets in the new year, potentially prompting investors to realign their investment portfolios.
Forecasts indicate that the stock market will see another prosperous year, the US dollar will maintain its recent strength in the coming months, and bond yields will continue to rise.
Investors are closely watching the following key market themes and trends in various segments of the market:
Investors generally expect the US economy to continue its exceptional performance in the new year, with strong consumer spending and a resilient labor market providing a solid foundation for growth compared to many other developed countries.
The US economy is expected to receive further support from potential tax reforms, including lowering corporate tax rates. Such tax breaks, which need to be passed by Congress, are expected to support corporate earnings and market sentiment.
Sonu Varghese, a global macro strategist at Carson Group, stated, “We do expect the US economy to outperform other regions in the world in 2025, given favorable monetary and fiscal policies.”
For investors, the extent and pace of interest rate cuts by the Federal Reserve in 2025 are key areas of focus. The Fed lowered rates in December after a period of aggressive rate hikes, but indicated a slower pace of further cuts.
Expectations of loose monetary policy have boosted the stock market. However, the sharp rise in benchmark bond yields after the Fed meeting could potentially dampen the upward momentum of the stock market.
Most forex market strategists predict that the US dollar will continue to strengthen.
Several factors, including relatively strong US economic growth and rising bond yields, supported a 7% increase in the US dollar against a basket of currencies this year and are expected to continue to support the dollar.
Trump’s tariffs and protectionist trade policies could also further boost the US dollar.
The prospect of rising inflation could impede the Fed from keeping up with the pace of rate cuts, even as other central banks continue to cut rates, which would further strengthen the dollar.
Given the US dollar’s central role in the global financial system, accurately gauging its direction is crucial for investors.
Investors witnessed how quickly the market shifted from stability to turmoil last Wednesday (December 18). Due to the Fed’s less-than-expected rate cut and escalating concerns about potential government shutdown, the US stock market saw a sharp decline.
While global financial markets may maintain an overall calm trading environment into the new year, analysts warn that volatility shocks are imminent.
Analysts at Bank of America Global Research expect that stock market volatility will not retrace the record-low levels seen at the beginning of Trump’s first term in 2017.
With the dual impact of tariffs and central bank actions, there may be greater volatility in the forex market next year.
Fredrik Repton, Senior Portfolio Manager at Neuberger Berman’s Global Fixed Income and Currency Management team, stated, “The shock absorber for financial markets next year will be foreign exchange.”
Strategists suggest that the speculative frenzy surrounding Bitcoin and cryptocurrency-related stocks in 2024 is unlikely to diminish in the new year.
Steve Sosnick, Chief Strategist at Interactive Brokers, said, “2024 was a landmark year for speculation,” with recent weeks seeing particularly fervent speculation.
As investors anticipate a crypto-friendly regulatory environment under Trump’s administration, Bitcoin reached a historic high above $100,000 in December.
While these trades can sometimes be turbulent, investors have been willing to buy on dips following the December Fed meeting.
Cryptocurrency-related stocks have also been on the rise, with software companies and Bitcoin hoarder MicroStrategy leading the way, rising more than 400% over the year.