Key takeaways
Market volatility is up since President Trump returned to the White House in January.
The S&P 500 is down modestly since Trump’s inauguration, apparently reflecting the uncertainty surrounding Trump administration economic policies including expanded tariffs.
Trump and Congress face significant issues in the coming weeks, including approving a federal budget and dealing with the debt ceiling.
In the early weeks of Donald Trump’s second presidential term, the S&P 500, after reaching all-time highs, is down 2.6% since Trump’s January 20th inauguration.1
Recent setbacks are a sharp contrast to early market expectations after Trump’s November 2024 election victory. Stocks demonstrated initial enthusiasm, with the S&P 500 gaining 2.5% on the day following the November vote. Equity markets as measured by the S&P 500’s price are now up just 1% since November 5, 2024.1 The S&P 500 topped new highs near January’s end, and again on February 19, but then retreated in both instances. The market’s recent setback comes as investors assess economic implications of Trump administration policies. The most notable are President Trump’s implemented and proposed tariff hikes that could impact on a wide range of U.S. and global businesses.
“Markets today are dealing with an increasing level of uncertainty surrounding Trump administration policies,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “Tariffs have become a major issue, but with unanswered questions such as what is the size of tariffs, what countries do they impact and how long will tariffs persist.”
At the same time, notes Haworth, markets are also attuned to the need for Congress to enact a 2025 budget and deal with the debt ceiling issue. “We need a federal budget passed to avoid a government shutdown and to fund all of the spending by issuing debt, which isn’t currently possible since the debt ceiling limit has been reached,” says Haworth. Congress has a March 14, 2025, deadline to either ratify a budget for fiscal year 2025 (which began on October 1, 2024) or to pass another continuing resolution to keep the government operating. “Extraordinary measures” used by the U.S. Department of the Treasury to avoid having to issue new debt are likely to exhausted during the summer, requiring a debt ceiling extension.
Prior to the election, says Tom Hainlin, senior investment strategist for U.S. Bank Asset Management, “Investors worried about what would happen if inflation reaccelerated, what if the Fed had to raise interest rates, what if the election outcome is uncertain. We overcame all these hurdles.” Along with a narrow but clear Trump victory in November and the Republican sweep of the House and Senate, Hainlin notes consumer spending remains solid and corporate earnings are positive, both factors that contribute to favorable, post-election market sentiment.
“Markets today are dealing with an increasing level of uncertainty surrounding Trump administration policies,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management.
“The U.S. economy entered 2025 with solid momentum,” says Beth Ann Bovino, chief economist for U.S. Bank. “2025 looks like another year of relatively healthy growth, though it may not be as strong as the previous two years.” The U.S. economy, as measured by Gross Domestic Product (GDP), grew 2.9% in 2023 and 2.8% in 2024.2
Trump administration policies are an economic wild card. “There’s a lot of uncertainty about the impact of government actions such as rising tariffs,” says Haworth.
Along with Trump’s tariff proposals, two other key issues on the table are likely to have an economic impact:
President Trump has emphasized reducing the number of undocumented immigrants currently residing in the U.S. This includes plans to deport millions of immigrants. “An economic consideration is that many of these immigrants, regardless of legal status, are part of the labor market,” says Haworth. He notes that losing this portion of the workforce could have inflationary implications, though the impact might be delayed. Foreign-born workers make up nearly 20% of the U.S. labor force.3
Although the Trump administration has pursued a crackdown on undocumented immigrants, to this point, the actions haven’t resulted in significant change. For example, to reach 1,000,000 deportations in a year, immigration enforcement would need to deport 2,700 immigrants per day. During Trump’s first three weeks in office, detentions of suspected undocumented immigrants averaged 667 per day, a pace of about 250,000 a year.4
In his first term, President Trump’s primary domestic achievement was the 2017 passage of the Tax Cut and Jobs Act (TCJA). It implemented significant income and estate tax cuts along with other tax law changes. However, the TCJA sunsets at the end of 2025. During the campaign, Trump emphasized his desire to extend the tax cut package. Narrow Republican majorities in the House and Senate complicate the legislative process. Congressional leaders have discussed trying to pass legislation that addresses multiple issues, including tax policy, in one or two bills. However, much work appears left to be done.
One key issue is the federal budgetary impact. According to a non-partisan organization’s recent estimate, extending the individual income and estate tax provisions from the 2017 Act would add nearly $4 trillion plus interest costs to deficits through fiscal year 2035.5 Congress may look for places to cut spending to offset some of the TCJA extension’s costs. “Offsets will require negotiation,” says Hainlin. “Nevertheless, directionally, it appears personal and corporate income tax rates are likely headed lower, not higher.”
A major consideration is how Trump administration policies may impact inflation and how soon interest rates, which remained elevated, might decline. Tariff impacts are a concern. “We could get a temporary inflation uptick,” says Haworth. As inflation remains elevated (3% for the 12 months ending in January 2025),6 the Federal Reserve (Fed) may be reluctant about adding to the three interest rate cuts that occurred late last year. “Given current inflation concerns, markets aren’t anticipating the Fed cutting interest rates more than one or two times in 2025,” says Haworth.
An immigration crackdown could have a mixed impact. If it meaningfully reduces the workforce, it could push labor costs higher. At the same time, it could have a favorable impact on the housing market. “Lower immigration could relieve some price pressures on rents,” says Hainlin. However, Hainlin points out that the interest rate environment also has a significant impact on the availability of single-family homes. Interest rates recently fell modestly, with the 10-year U.S. Treasury note yield hovering near 4.3%, well below its 2025 peak of 4.79%.7 Average 30-year mortgage rates, which recently topped 7%, modestly declined in recent weeks.8
Early market enthusiasm for Trump’s victory may in part reflect the fact that markets generally prospered from 2017 to 2021, during Trump’s first term. However, slightly more than one month into Trump’s new term, markets are virtually flat.1 The S&P 500 enjoyed strong performance in the past few administrations.
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Between the end of trading on election day, November 5, 2024, through March 5, 2025, the S&P 500 gained 1.04%, often experiencing periods of significant volatility within that timeframe.1 While some market performance may be attributable to investor’s election outcome reaction and subsequent Trump administration policies, other factors have also come into play. In late 2024, the Federal Reserve was in the process of reducing short-term interest rates, generally considered a favorable sign for stocks. In addition, the U.S. economy continued to show persistent strength with the labor market holding up well, helping consumers maintain elevated spending levels. This contributed to continued corporate profit growth, a key stock market driver. In 2025, the environment became more uncertain amid a flurry of President Donald Trump’s proposed policy changes and multiple executive orders. That led to greater market volatility and subdued equity market performance.
Investors tend to assess a variety of factors. Federal government policy, often driven in large part by the President, is only one of those factors. Another major story boosting markets is that the U.S. economy in 2024 grew at a 2.8% annualized rate, considered a reasonable expansion pace in a high-interest rate environment.2 Consumer spending helped fuel economic growth, which in turn benefited corporations, that continue to experience solid profit growth. In today’s environment, investors are also considering Trump policies, such as expanded tariffs, and the potential economic ramifications.
As President Joe Biden’s term wraps up, the market’s performance is comparable to that generated by markets during President Donald Trump’s first term. Through Biden’s four-year term, which ended January 20, 2025, the S&P 500 gained 57.85%. In Trump’s first term, the S&P 500 gained nearly 68%. While that was impressive, since 1980, Trump’s first-term record ranks as only the fifth-best market return during a four-year presidential term. The top-performing markets over four-year presidential terms during that span were: (1) Bill Clinton, 1993-1997, + 77.68%; (2) Clinton again, 1997-2001, +72.97%; (3) Barack Obama, 2009-2013, 74.80%; and (4) Ronald Reagan, 1985-1989, +68.05%.1
U.S. presidential elections naturally affect policy — but do they affect the market? Here’s a look at the impact election cycles have historically had on capital markets and what to watch for in 2024.
Having reached new record highs more than 50 times in 2024, investors wonder if the S&P 500 is due for a pullback in 2025 as new Trump administration policies fuel market uncertainty.
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