3 days Ago
The stock market entered the final week of 2024 with unease, as the financial community grappled with the implications of Donald Trump's potential presidency and its impact on global markets in 2025. The stock market's fear gauge, known as the CBOE Volatility Index, saw a significant spike on Wednesday, reflecting mounting investor anxiety about the future. The VIX skyrocketed by 74%, reaching a level of 27.
6, indicating heightened investor anxiety and uncertainty in the markets. This surge in volatility is closely tied to the Federal Reserve's recent policy announcements and the broader economic outlook as we approach the new year. This surge in volatility also suggests that investors are becoming increasingly worried about potential risks and uncertainties ahead.
Market Reaction The stock market responded negatively to these developments. The S&P 500 plunged 3.03%, while the Nasdaq 100 sank 3.
74%. The Dow Jones dropped 1,103 points (-2.54%), marking one of the steepest declines since September 2022.
These broad market routs reflect investors' growing concerns about the economic outlook and potential policy changes. Investor sentiment is currently cautious, with many watching closely how Trump's administration will navigate these trade policies. The fear gauge's rise indicates that market participants are bracing for volatility and potential downturns in equity markets as the implications of these tariffs unfold.
Also Read: These three darlings of AI will be the first companies to join the $4 trillion club in 2025, says Dan Ives Impact of Trump's proposed Tariffs Donald Trump's presidency looms large over the financial community's concerns. The possibility of Trump implementing tariffs or other trade policies could have significant implications for global markets and trade relationships. Trump's trade agenda, which includes a 10% across-the-board tariff on all trading partners and significantly higher tariffs on goods from China, raises concerns about increased costs for consumers and businesses alike.
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However, he emphasized that the Fed's current focus remains on achieving its 2% inflation target and maintaining strength in the labor market. Analysts are particularly concerned about how these tariffs might affect various sectors of the economy, with predictions that they could lead to inflationary pressures and slow global economic growth. Dave Sekera, chief U.
S. market strategist for Morningstar, emphasizes that the potential implementation of tariffs represents a "wild card" for the markets in 2025. The specifics of these tariffs—such as which countries and products they target, and the magnitude of the tariffs—will be crucial in determining their impact on the economy and stock markets.
Also Read: Is Wall Street realising that a Trump presidency might not be great for stocks? Dow in a 9-day losing streak, its longest since 1978 Inflation Concerns The Fed's updated economic projections revealed some concerning trends for investors. The central bank now anticipates only two additional rate cuts in 2025, down from the four cuts previously projected 3. This shift in expectations has led to a reassessment of the interest rate outlook, causing Treasury yields to jump significantly.
Moreover, the Fed's inflation forecasts have been revised upward. Headline inflation for 2025 is now expected to hit 2.5%, up from the previously projected 2.
1% 3. Core inflation, which excludes food and energy prices, is also seen rising to 2.5%, up from the previous forecast of 2.
2%. As we enter the final stretch of 2024, the financial markets seem to be bracing themselves for a potentially challenging 2025. The combination of hawkish monetary policy from the Federal Reserve, rising inflation expectations, and uncertainty surrounding potential political shifts all contribute to an atmosphere of caution among investors.
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