Investor sentiment in the US has shifted significantly in 2025, with less enthusiasm for both the potential impacts of artificial intelligence (AI) and former President Donald Trump’s influence on the stock market.
A period of optimism last year, driven by both AI advancements and Trump’s perceived market-friendliness, has given way to uncertainty and cautiousness as key economic factors evolve.
Throughout December 2024, AI and Trump’s pro-market rhetoric played a major role in boosting investor confidence. However, by 2025, the market mood has cooled. Trump’s recent tariff threats have raised concerns among investors. On Friday, when Trump mentioned the possibility of imposing reciprocal tariffs on trading partners, stocks dropped sharply. His announcement on Sunday regarding new 25% tariffs on aluminum and steel imports, expected to take effect on Monday, is likely to lead to further market declines. These actions have been met with trepidation, reflecting a pattern from previous years where tariff threats sent markets into turmoil.
Simultaneously, AI, which powered much of the market’s growth in 2024, now appears to be creating more uncertainty. The revelation by DeepSeek, a tech company claiming to require only a fraction of the investment needed by US AI models, has raised doubts about the effectiveness of Big Tech’s massive $300 billion investments in AI for 2025. The backlash has extended to tech stock valuations, with many questioning whether the current valuations are sustainable.
Meanwhile, the economic landscape continues to evolve. The US labor market showed mixed results in January, with job growth below expectations. Still, the unemployment rate decreased, and wage growth remained robust, signaling strength in certain areas of the economy. On the global front, China’s economic data is sending conflicting signals, with consumer prices rising while producer prices continue to fall.
As the markets head into February 2025, European stocks have outperformed their US counterparts, even as investors grapple with high inflation and interest rates. Amid these macroeconomic challenges, some investors are reassessing their portfolios, with an eye toward minimizing exposure to volatile sectors like tech. In response to elevated valuations, there is a growing interest in mid-cap stocks, which typically perform well when interest rates are lowered.
