Key takeaways
Increased capital market volatility has accompanied President Trump’s second term in office so far.
As of mid-March, the S&P 500 is down more than 9% from its all-time high reached in February.
Trump’s vacillating tariff plans appear to be contributing to market uncertainty.
Markets are struggling through a rocky stretch in the early months of President Donald Trump’s second administration. The S&P 500 is down 7.1% since Trump’s January 20th inauguration. The Index is 9.3% lower than its all-time high, achieved on February 19, 2025. This decline nearly fits the definition of a market correction, which is a pullback of 10% or more from the market’s peak.1
Recent setbacks stand in 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. Through March 11, 2025, equity markets as measured by the S&P 500 declined 3.64% since November 5, 2024.1 The market’s recent retreat 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 a wide range of U.S. and global businesses. Trump implemented 20% tariff hikes on Chinese imports, and is planning on more significant tariffs against Canada and Mexico. However, he has frequently set dates for tariffs to take effect, then at the last minute, delayed implementation.
“I think markets are looking for the administration to pullback from the present approach in order to get a meaningful positive bounce,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “Based on recent comments, President Trump doesn’t seem as focused on the equity market as investors hoped.”
The most recent market downturn also comes as Congress was running up against a March 14 deadline to approve ongoing government funding in lieu of a final, fiscal year 2025 budget. Congress also must confront the need to suspend the debt ceiling this year, which would allow the U.S. Department of the Treasury to again issue debt to cover costs that exceed current tax receipts. “We need legislation 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. “Extraordinary measures” used by the Treasury Department to avoid having to issue new debt will likely be exhausted during the summer.
“This is a roller coaster market with a wall of worry that’s under construction,” says Terry Sandven, chief equity strategist for U.S. Bank Asset Management. “There is a lot of uncertainty that goes beyond company fundamentals.”
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.
“This is a roller coaster market with a wall of worry that’s under construction,” says Terry Sandven, chief equity strategist for U.S. Bank Asset Management. “There is a lot of uncertainty that goes beyond company fundamentals.”
“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. In the month of February, 11,000 migrants (less than 400 per day) were deported, fewer than were deported in February 2024 under the Biden administration.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 and include additional tax cuts. Narrow Republican majorities in the House and Senate complicate the legislative process.
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 are anticipating limited Fed rate cuts in 2025,” says Haworth.
“The American consumer really isn’t buying the idea of temporary inflation,” says Eric Freedman, chief investment officer for U.S. Bank Asset Management. “They have a sense that inflation may come in north of 4%.” The equity market’s recent retreat may partly reflect rising cost fears. “There’s a concern that the core consumer may slow spending, which would create issues for corporations trying to maintain earnings growth,” says Freedman.
One favorable sign is that 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%, recently dropped to 6.63%, providing some relief for prospective homeowners and a sluggish housing market.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, nearly two months into Trump’s new term, markets are in solidly negative territory.1 The S&P 500 enjoyed strong performance in recent administrations.
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