In 2025, the American stock market faced a tempest. President Donald Trump’s tariffs had stirred the waters once again, leading to a massive sell-off. Investors, gripped by fear, saw $4 trillion vanish from the S&P 500 since its peak in February. Wall Street, once buoyed by Trump’s agenda, now trembled.
The Downward Spiral
A series of new policies introduced uncertainty. Tariffs against major partners like Canada, Mexico, and China added fuel to the fire. Ayako Yoshioka, a senior investment strategist, observed a clear shift in sentiment. What once worked no longer did.
On a fateful Monday, the S&P 500 fell 2.7%, marking its biggest drop of the year. The Nasdaq slid 4%, its largest decline since September 2022. The S&P 500 closed down 8.6% from its February 19 record high, shedding over $4 trillion in market value. The tech-heavy Nasdaq ended Thursday down more than 10% from its December high.
Uncertainty at the Helm
Over the weekend, President Trump declined to predict whether the U.S. could face a recession, adding to investors’ worries. Peter Orszag, CEO of Lazard, noted that ongoing tensions with China were understandable, but conflicts with Canada, Mexico, and Europe were perplexing. Without resolution, these issues could harm the U.S. economy and mergers and acquisitions activity.
Corporate Caution
Delta Air Lines slashed its first-quarter profit estimates by half, sending its shares down 14% in aftermarket action. CEO Ed Bastian blamed heightened U.S. economic uncertainty.
The Market’s Response
Investors watched closely as lawmakers worked to pass a funding bill to avert a partial federal government shutdown. A U.S. report on inflation loomed on Wednesday. Ross Mayfield, an investment strategist at Baird, observed that the Trump administration seemed more accepting of market declines and potential recession to achieve broader goals—a wake-up call for Wall Street.
The S&P 500’s technology sector dropped 4.3%, while giants like Apple and Nvidia both fell about 5%. Tesla tumbled 15%, shedding about $125 billion in value. Other risk assets suffered too, with bitcoin dropping 5%.
Seeking Safe Harbors
Some defensive areas held up better. The utilities sector logged a 1% gain. Safe-haven U.S. government debt saw more demand, with benchmark 10-year Treasury yields down to about 4.22%.
Investor Unease
The S&P 500 gave up all gains recorded since Trump’s November 5 election, down nearly 3% in that time. Hedge funds reduced exposure to stocks on Friday at the largest amount in over two years, according to a Goldman Sachs note.
Investors had been optimistic about Trump’s pro-growth agenda, including tax cuts and deregulation. But uncertainty over tariffs and other changes, including federal workforce cuts, dampened sentiment. Michael O’Rourke, chief market strategist at JonesTrading, noted that structural changes bring uncertainty and friction, leading people to take profits.
Even with the recent selloff, stock market valuations remained significantly above historic averages. The S&P 500 was at just above 21 times earnings estimates for the next year, compared to its long-term average forward P/E of 15.8.
Looking Ahead
Dan Coatsworth, an investment analyst at AJ Bell, remarked that concerns about a trade war, geopolitical tensions, and an uncertain economic outlook could be the catalyst for a market correction.
As the storm of 2025 raged on, investors and analysts alike braced for what lay ahead, hoping for calmer seas in the turbulent world of finance.
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