Investors grapple with big risks, sending stocks lower to start 2025

On By Littum

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

U.S. stocks rose in early trade, but by early afternoon the S&P 500 and Dow Jones Industrial Average were down more than half a percent. The Nasdaq Composite Index, which includes several technology stocks, fell 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 American risk assets,” Grant told USA Today. “The reason is that this is actually going on for a long time.”

Although December’s “Santa Rally” fizzled, the S&P 500 is up more than 23% in 2024. Stocks have posted double-digit annual returns most years of the decade, largely thanks to strong corporate profits in many sectors of the economy and expansionary fiscal policy.

Some uneasiness about whether these trends may continue may begin to creep into financial markets, Grant said.

“Investors need to scale back their expectations,” he added. “They 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 into 2025, which is a possible scenario.”

The shares of Tesla, Inc. fell almost 7% in the afternoon after the electric car company announced quarterly and full year 2024 delivery numbers that were slightly lower than in 2023. Investors may also have reacted to the New Year 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 rate cuts — if not reverse course and raise rates at some point in 2025. The 10-year U.S. Treasury note has risen nearly a full percentage point since mid-2025. September, when the central bank delivered its first rate cut in four years. Bonds lose their value, causing yields to rise when inflation is higher.