Stock Market Sees New Year Boost Amid Looming Risks
As the new year gets underway, U.S. stock futures are surging, building on early gains made in 2025. This upward trend is a welcome respite from the lackluster performance of the stock market in recent times.
Tariffs and Inflation: The Well-Known Risks
One of the most significant concerns for investors is the impact of President-elect Donald Trump’s plans to impose steep tariffs on imports. This move is expected to have far-reaching consequences for the economy and the stock market. Additionally, the threat of faster-than-expected inflation and rising Federal Reserve interest rates also loom large.
The Hidden Dangers of Higher Bond Yields
However, according to Barry Knapp, a macroeconomist at Ironsides Macroeconomics, there are other, less discussed risks that could have a significant impact on the market. One such risk is the increase in bond yields, which is not just driven by inflation and interest rates. The Federal Reserve’s sale of past Treasury holdings, as well as concerns about the U.S. government budget, are also contributing factors.
Tighter Financial Conditions: The Largest Global Risk
Knapp warns that tighter financial conditions due to higher yields pose the largest global risk for early 2025. As the Fed sells down its Treasury holdings, it could lead to a decrease in liquidity, making it more expensive for companies and individuals to borrow money. This, in turn, could have a ripple effect on the entire economy.
A Complex Web of Risks
As the new year unfolds, investors will need to navigate a complex web of risks, from tariffs and inflation to higher bond yields and tighter financial conditions. While the current surge in stock futures is a welcome relief, it’s essential to remain vigilant and prepared for the challenges that lie ahead.
Leave a Reply