Investors are struggling with big risks and are sending stocks lower as 2025 begins

Markets fluctuated on the first trading day of 2025 as investors grappled with big questions ahead of a transition of power in Washington.

U.S. stocks jumped in early trading, but by early afternoon the S&P 500 and Dow Jones Industrial indexes fell more than half a percent. The Nasdaq Composite Index, which includes more technology stocks, lost 127 points, or about 0.7%.

“The market can’t find a firm footing,” 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 reinforce these extraordinary premiums for U.S. risk assets,” Grant told USA Today. “The mystery is that this has actually been going on for a long time.”

Even though the “Santa Rally” fizzled out in December, the S&P 500 gained more than 23% in 2024. Stocks posted double-digit annual returns for most of the decade, largely due to strong corporate earnings across many sectors of the economy and expansionary fiscal policies.

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Some concern about whether these trends can continue may be spreading across financial markets, Grant said.

“Investors need to lower their expectations,” he added. “You need to avoid areas like Tesla, the AI narrative and overvalued growth stocks.” Because that’s where the real risk lies, especially if interest rates stay higher for longer in 2025, which is a possible scenario.”

Shares of Tesla, Inc. fell nearly 7% in the afternoon after the electric car maker reported 2024 quarterly and full-year delivery numbers that were slightly below 2023. Investors may also have been reacting to the New Year’s Day explosion of a Tesla cybertruck that killed the driver and is currently under investigation.

Investors are also digesting the likelihood that the Federal Reserve will have to scale back its rate cuts – unless it reverses course and raises rates sometime in 2025. The 10-year US Treasury bond has gained almost a full percentage point since mid-2025. September, when the central bank made its first interest rate cut in four years. Bonds lose value and yields rise when inflation is higher.

Investors are struggling with big risks and are sending stocks lower as 2025 begins

ByAmelia Journalton

By Amelia Journalton

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