Markets Slide as 2025 Begins with Uncertainty

The new year got off to a rocky start, with markets taking a hit across the board during the first full week of 2025. The domestic market felt the brunt of it, as the Nasdaq dropped over 2%. 

What stood out this week was how widespread the losses were. They weren’t confined to a single area or sector. Large-cap stocks were hit hardest in the growth segment, but even small-cap stocks performed worse overall, with small-cap value stocks falling more than small-cap growth stocks. Mid-cap stocks landed somewhere in the middle. 

This time of year can be a bit of a lull for the markets. There’s not always a lot of economic news before earnings season kicks off. But 2025 is shaping up to be unique, not just because it’s a new year, but because of a big shift in political leadership. For only the second time in U.S. history, a former president is returning to office. President Trump and the Republican Party will control both the House and the Senate, solidified with the certification of election results on January 6th.  

Even before officially taking office, President Trump’s comments on tariffs and other policies have raised eyebrows among market analysts. Many are concerned these moves could lead to higher inflation—or worse, stagflation.  

Adding to the uncertainty, the Federal Reserve released the minutes from their December meeting last week. Inflation was a key theme, despite the Fed cutting interest rates three times last year. They highlighted concerns about how trade and immigration policy changes could slow the fight against inflation, stating: 

“the effects of potential changes in trade and immigration policy, suggested that the process could take longer than previously anticipated.  Several observed that the disinflationary process may have stalled temporarily or noted the risk that it could.  A couple of participants judged that positive sentiment in financial markets and momentum in economic activity could continue to put upward pressure on inflation.  All participants judged that uncertainty about the scope, timing, and economic effects of potential changes in policies affecting foreign trade and immigration was elevated.” 

In response, interest rates climbed last week, with the yield curve rising by as much as 19 basis points as markets braced for what’s ahead. 

For now, though, everything remains speculative. The real test will come next week when the Trump Administration officially takes office and starts putting its policies into action. 

https://www.nbcnews.com/politics/congress/live-blog/congress-election-certify-trump-live-updates-rcna184509

https://www.cnn.com/2024/12/17/economy/trumps-tariffs-stagflation/index.html

https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20241218.pdf

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