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Investors grapple with big risks, sending stocks lower to start 2025
Markets seesawed on the first trading day of 2025 as investors grappled with big questions ahead of a change of power in Washington.
U.S. stocks jumped in early trading, but by early afternoon the S&P 500 and Dow Jones Industrial indexes were down more than half a percent. The Nasdaq Composite Index, which contains more technology stocks, was off 127 points, or about 0.7%.
“The market can’t get a firm grip,” said Michael Grant, co-CIO and head of long/short strategies at Calamos Investments, which has $40 billion in assets.
“It’s easy to imagine that the second coming of Trump will amplify these extraordinary premiums that exist for U.S. risk assets,” Grant told USA Today. “The conundrum is that this is actually going on for a long time.”
Even though December’s “Santa Rally” fizzled, the S&P 500 gained more than 23% in 2024. Stocks have notched double-digit annual returns most years in the decade, thanks largely to strong corporate profits in many sectors of the economy and expansive fiscal policy.
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Some unease about whether those trends can continue may be starting to creep into the financial markets, Grant said.
“Investors need to scale back their expectations,” he added. “They need to avoid areas like Tesla, the AI narrative, and excessively valued growth stocks. Because that’s where the real risk lies, particularly if interest rates stay higher for longer in 2025, which is one possible scenario.”
Shares of Tesla, Inc. were down nearly 7% in the afternoon after the electric-car company announced quarterly and full-year 2024 delivery numbers that were slightly lower than those in 2023. Investors may also have been reacting to the New Year’s Day explosion of a Tesla Cybertruck, which killed the driver, and is under investigation.
Investors are also digesting the likelihood that the Federal Reserve will have to scale back its interest rate cuts – if not reverse course and hike rates at some point in 2025. The 10-year U.S. Treasury note has gained nearly a full percentage point since mid-September, when the central bank delivered its first rate cut in four years. Bonds lose their value, making yields rise, when inflation is higher.
Investors grapple with big risks, sending stocks lower to start 2025
As the new year kicks off, investors are facing a myriad of challenges and uncertainties that are weighing heavily on the stock market. From geopolitical tensions to rising inflation and interest rates, there are significant risks that are causing concern among investors.
One of the biggest concerns for investors is the ongoing geopolitical tensions between major world powers, such as the United States, China, and Russia. The possibility of conflict or trade disputes between these countries could have far-reaching implications for the global economy and financial markets.
In addition, inflation is on the rise, driven by soaring energy prices and supply chain disruptions. This has led central banks to consider raising interest rates in order to combat inflation, which could potentially slow down economic growth and corporate earnings.
Furthermore, the uncertainty surrounding the Omicron variant of COVID-19 and its potential impact on the economy is adding to the volatility in the markets. The rapid spread of the variant has led to renewed restrictions and lockdowns in some regions, further complicating the economic outlook.
All of these factors are contributing to the recent selloff in the stock market, with investors grappling with the big risks that lie ahead in 2025. While the situation remains uncertain, many analysts are urging investors to remain cautious and diversified in their portfolios in order to weather the storm.
As we navigate through these turbulent times, it is important for investors to stay informed, stay vigilant, and be prepared for any potential challenges that may arise. Only time will tell how these risks will play out in the market, but one thing is for certain – investors will need to be resilient and adaptable in order to succeed in this challenging environment.
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