New York CNN — As the New Year unfolded, investors were optimistic about the potential benefits of a business- and cryptocurrency-friendly Trump administration. However, just two months into 2025, U.S. stocks have underperformed compared to their European and Chinese counterparts, while Bitcoin prices are declining and inflation concerns are escalating.
### Market Reactions to Consumer Confidence Survey
On Tuesday, U.S. stock markets faced downward pressure as investors reacted to a dismal consumer confidence survey, revealing increased worries about inflation. The Conference Board’s consumer confidence index recorded its steepest monthly drop since August 2021. Although the Dow Jones Industrial Average fluctuated in the morning, it managed to gain 0.35% during afternoon trading. Conversely, the S&P 500 fell by approximately 0.33%, and the Nasdaq Composite experienced a 1% decline. The persistent signs of inflation and the ongoing uncertainty surrounding President Donald Trump’s trade and tariff policies have left investors on edge.
### Fear Grips Investors
Investor sentiment took a turn for the worse, with CNN’s Fear & Greed Index indicating a shift into the extreme fear category for the first time since December. The VIX, often referred to as Wall Street’s fear gauge, climbed to its peak level of the year on Tuesday before slightly retracting. The S&P 500 has closed lower for three consecutive sessions, and all three major U.S. stock indexes have recorded losses since Trump assumed office on January 20. The tech-heavy Nasdaq has dropped more than 1% since the beginning of 2025, reflecting growing investor anxiety.
### A Shift to Safer Investments
In light of the growing uncertainty, investors appear to be reallocating their assets from stocks to safer investments, such as government bonds, while divesting from riskier options like cryptocurrencies. Bitcoin, which reached a high of $106,000 around Trump’s inauguration, has seen a decline of about 17% over the past month, trading at approximately $87,000 on Tuesday. The yield on the 10-year U.S. Treasury bond fell to 4.3%, indicating a rush towards bonds as investors express concerns about economic stability and underwhelming growth forecasts.
### Global Markets Diverge from U.S. Performance
While U.S. stocks struggle, global markets are performing well. The European STOXX 600 Index has risen nearly 10% this year, and Chinese equities continue to outperform U.S. stocks. Analysts from Goldman Sachs noted that the launch of DeepSeek’s language model has sparked renewed interest in the Chinese tech sector, which has surged over 35% from its January lows. Additionally, developments related to Ukraine have bolstered performance for European tech firms and those involved in potential reconstruction efforts.
### Questions Surrounding Continued Bull Market
Despite the gains in the Dow and broader S&P 500 since Trump’s reelection in November, concerns linger about the sustainability of the bull market that saw the S&P 500 achieve back-to-back gains exceeding 20% in 2023 and 2024. The tech sector, which drove U.S. index gains in 2024, has faced recent volatility, with major players like Nvidia, Palantir, and Tesla leading the selloff on Tuesday. Palantir, once a standout performer, has dropped around 30% in just five days, while Tesla’s stock fell 8% by midday, pushing its market valuation below the $1 trillion threshold.
### Mixed Sentiment Among Traders
According to Charles Schwab’s quarterly trader sentiment survey, two-thirds of traders believe that the market is overvalued. However, bullish traders still outnumber their bearish counterparts, with a ratio of 51% to 34%. James Kostulias, head of trading services at Charles Schwab, commented that while many traders sense overvaluation, they still believe there is potential for further bullish momentum.
### Potential for Positive Market Fundamentals
Despite the prevailing uncertainty, some market strategists are optimistic that strong corporate earnings could drive stock prices higher. Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, expressed confidence that while volatility is expected as investors navigate the implications of Trump’s proposed policies, the market is likely to realign with fundamental factors that could support continued equity growth.
