How will Trump 2.0 and the Federal Reserve's easing policy play out in the U.S. stock, bond, and currency markets?

According to Zhitong Finance APP, American investors are preparing for a series of changes from tariffs and deregulation to tax policies in 2025, which will impact the market as the incoming President Trump returns to the White House and will prompt attention to whether the U.S. economy can continue to perform well.

The change of government in the United States has a significant impact on the trends of the stock market, bond market, and foreign exchange market in the new year, which may drive investors to readjust their portfolios.

Predictions indicate that U.S. stocks will rise again this year, the dollar will maintain its recent strength in the coming months, and U.S. Treasury yields will continue to rise.

Here is an overview of the main market themes and segments that investors are closely watching:

American Exceptionalism

Investors generally expect that the U.S. economy will continue to remain exceptional in the new year, as strong consumer spending and a resilient job market provide a more solid foundation for U.S. economic growth compared to many developed countries.

The U.S. economy is expected to receive further support from any potential tax reforms, including a reduction in corporate tax rates. Such tax cuts (which require Congressional approval) could boost corporate profits and market sentiment.

In contrast, despite the Eurozone economy growing faster than expected in the third quarter, its outlook remains weak due to the potential for high tariffs from the Trump administration, escalating trade tensions, and low consumer confidence.

Sonu Varghese, a global macro strategist at Carson Group, stated, "We do expect that with potentially favorable monetary and fiscal policies, U.S. economic growth will exceed that of the rest of the world in 2025."

Federal Reserve

In 2025, investors will focus on the pace and magnitude of the Federal Reserve's interest rate cuts. The Fed cut rates in December after a period of aggressive rate hikes, but hinted at slowing the pace of further cuts.

Expectations for accommodative monetary policy have boosted the stock market. However, with benchmark Treasury yields rising sharply after the Fed meeting, the outlook for interest rates may weaken the upward momentum of the stock market.

Dollar Dominance

Dollar bears have been hit hard this year, and most forex market strategists expect the dollar to continue strengthening.

Many factors that drove the dollar index up 7% this year, including relatively strong U.S. economic growth and rising U.S. Treasury yields, are expected to continue supporting the dollar.

Trump's tariffs and protectionist trade policies may also boost the dollar.

Even as other central banks continue to cut rates, the prospect of rising inflation may hinder the Fed's ability to continue cutting rates, further boosting the dollar.

Given the dollar's central position in global finance, accurately grasping the dollar's trends is crucial for investors.

A strong dollar may pressure the outlook for U.S. multinational companies and complicate other central banks' efforts to combat inflation, as it would lead to the depreciation of other currencies.

Karl Schamotta, chief market strategist at payment company Corpay, stated, "Another significant rise in the dollar this year could disrupt certain aspects of the global economy, but with major uncertainties looming, another round of American exceptionalism has largely been digested, making further outstanding performance difficult to achieve." Volatility

Last Wednesday, investors experienced how quickly market stability can turn into turmoil. The U.S. stock market fell sharply due to the Federal Reserve lowering its interest rate cut expectations for next year, while concerns about a potential partial government shutdown intensified.

Global financial markets may carry the overall calm trading environment into the new year, but analysts warn that volatility shocks are long overdue.

Analysts at Bank of America Global Research stated that they do not expect the record levels of stock market volatility set at the beginning of Trump's first term in 2017 to be repeated.

With the dual impact of tariffs and central bank actions, the foreign exchange market may experience greater volatility next year.

Fredrik Repton, senior portfolio manager responsible for global fixed income and foreign exchange management at Neuberger Berman, said, "Next year, foreign exchange will become a shock absorber for the financial markets."

Cryptocurrency

Strategists say that the speculative frenzy surrounding Bitcoin and crypto-related stocks that began in 2024 is unlikely to weaken in the new year.

Steve Sosnick, chief strategist at Interactive Brokers, stated, "2024 is a harvest year for speculation, and in recent weeks, speculation has evolved into a self-fulfilling frenzy."

Although these trades sometimes encounter trouble, most recently after the Federal Reserve's December meeting, investors have remained willing to buy on dips.

Sosnick noted, "When something has been used by many people for a long time, they are reluctant to give it up."

In December of this year, Bitcoin reached a historic high of over $100,000, as people anticipated that Trump's election would create a friendly regulatory environment for cryptocurrencies.

Crypto-related stocks have also been rising, with software company and Bitcoin stock developer MicroStrategy (MSTR.US) seeing an increase of over 400% this year