📈 5 Key Trends Shaping Markets This Week: Fed, Trump, and More

A Steady Fed: A Quiet Start to 2025?

The Federal Reserve is expected to hold interest rates steady during its first meeting of 2025, maintaining the current range of 4.25% to 4.50%. This pause marks a shift after months of cuts since September. While the economy hasn’t shown “consistent progress” on inflation, the Fed appears to be playing it safe amid ongoing uncertainty. Policymakers are keen to avoid unnecessary shocks to a market already adjusting to volatility.

Fed Chair Jerome Powell's cautious, data-driven approach has calmed markets for now, but his press conference on Wednesday could signal how future policies will address inflationary risks and other economic pressures.

Bond Market Stabilises (For Now)

The bond market has shown signs of recovery from late 2023's selloff, which sent yields soaring. The 10-year Treasury yield, while still high at nearly 4.6%, has retreated from its recent peak of 4.8%. A slower-than-expected inflation report on January 15 helped ease fears, giving traders a breather.

Adding to this relief was Donald Trump’s first week back as president. His decision to hold off on immediate tariff increases—and hint at milder measures on Chinese imports—helped temper inflation concerns and reduced the risk of a trade-driven economic shock.

Trump’s Policies: Fuel for Market Volatility?

President Trump’s return to the White House has brought market uncertainty, with bond traders watching closely. Policies on tariffs, immigration, and deregulation remain key concerns, as they could impact labor markets, inflation, and interest rates.

Some market watchers, like George Catrambone of DWS Americas, note that the bond market is demanding compensation for “Trump uncertainty.” How Trump’s fiscal policies unfold will significantly influence both Federal Reserve decisions and broader economic trends.

Stock Market: Earnings and AI Drive Momentum

The stock market began the year with a strong rally, with the S&P 500 hitting record highs thanks to optimism around Trump’s $500 billion Stargate AI venture. But rising bond yields could dampen valuations, especially if companies fail to meet lofty earnings expectations.

Earnings reports from tech giants like Microsoft, Meta, and Tesla this week will offer critical insights into corporate performance amid a challenging economic backdrop. Investors will also monitor GDP growth and the Fed’s favored inflation measure, the personal consumption expenditures index.

What to Watch This Week

This week promises plenty of action, with economic data and policy announcements likely to influence market dynamics. Key highlights include:

• Economic Reports: Durable goods orders, GDP growth, and inflation data will provide clues about the economy’s health.

• Fed Updates: Jerome Powell’s comments could shift expectations for the central bank’s next steps.

• Earnings Reports: Tech heavyweights’ quarterly results will show whether innovation can offset higher borrowing costs.

Final Takeaways

As markets adapt to a Trump-led economy and a data-dependent Fed, uncertainty remains the only constant. Whether this “dance marathon,” as one strategist put it, leads to smoother steps or further stumbles will depend on how these events unfold in the weeks ahead.