As Washington, D.C. approaches 2025, it faces a minefield of deadlines with serious political and economic consequences.
But Wall Street doesn't seem too worried.
The stock market ended 2024 with strong gains across all sectors, despite a slight decline in December. Experts see plenty of greenery ahead, despite the high potential for political turmoil.
The S&P 500 ended the year up more than 23%, marking the second straight year of gains of more than 20%. The Nasdaq Composite closed up about 29%, and the Dow Jones Industrial Average ended 2024 up about 13%.
December's weakness took some of the wind out of the market, but Wall Street remains hopeful that stocks can weather the political storm.
“We believe we will see record revenues and margins in 2025, and exceptional household balance sheets, with little fear of a recession,” said Carson Group Chief Market Strategist. , Ryan Detrick said in an email Tuesday.
Detrick said some of December's decline was due to strong economic data and expectations that the Federal Reserve would cut interest rates less in 2025. .
He added that improved workforce productivity should help propel the economy through the various political flashpoints in 2025.
“I wouldn't worry too much about the drama coming out of Washington,” Detrick said.
President-elect Trump will be banking on the resilience of the stock market throughout the start of his second term.
The suspension of the U.S. debt ceiling is set to expire on Thursday, beginning a countdown for President Trump and the Republican-controlled House and Senate to avoid default. The president-elect wants to lift the debt limit, but is expected to face serious challenges from the fiscal hawks in his party just to end it.
Funding for the federal government also expires on March 15, raising fears of a government shutdown less than 100 days before the start of President Trump's first term.
Detrick said Wall Street is used to abandoning shutdown fights and even forfeiting all government funding, something that has become increasingly common over the past decade. He added that the longest shutdown in history occurred in 2018, when the stock price rose 10%.
“A government shutdown is likely to occur at some point in 2025, but again, we have seen many government shutdowns over the years, and the long-term economic impact will be very small,” Detrick said. ” he said.
Republican lawmakers are also unlikely to let President Trump slip into a catastrophic debt default, despite concerns about the growing federal deficit.
Rather, the biggest market-related risk that a government shutdown or debt ceiling fight could pose is that it would derail Republican plans to cut taxes and reduce regulation.
President Trump and Republican lawmakers are eager to extend key provisions of the 2017 Tax Cuts and Jobs Act, which is set to expire at the end of 2025, including lower personal income tax rates. The president-elect has also proposed further reductions in the corporate tax rate, which under any circumstances would send a shockwave through the markets.
The president-elect and his advisers are also plotting ways to roll back Biden administration regulations that have been criticized by businesses, which could further boost the market in 2025.
“The potential positive trend on the back of business-friendly regulation is clear. Markets expect deregulation to support certain industries such as financial services and oil and gas, leading to increased merger and acquisition activity. We think Elon Musk and Vice President-elect J.D. Vance's ties to Silicon Valley could lead to less regulation in the technology sector.'' wrote in a research note on Monday.
Still, LPL analysts warned that Trump's plan also includes some provisions that could dampen enthusiasm through tax cuts and deregulation.
President Trump has promised to impose new high tariffs on imports from Canada, Mexico and China after he takes office in January. These new charges, which he could impose without Congress, could raise costs for Americans and draw retaliatory tariffs from trading partners.
Economists have also expressed serious concerns about the potential impact of mass deportations of immigrants without the permanent legal status promised by President Trump.
“Protectionist trade policies pushed the 'Great One' into the Great Depression. Rising import costs could hurt importers' profit margins, and retaliatory measures could hurt growth,” analysts said. said. “In short, for stocks to enjoy a good year in 2025, the Trump administration's policies will need to deliver more benefits than costs.”
President Trump has argued that mainstream economists and analysts do not understand the nature of tariffs or the broader economic goals they could achieve if they were imposed.
“It's going to have a huge effect, a positive effect. It's going to be a positive effect,” President Trump said in October.
