The year 2025 marked a period of heightened adjustment across global financial markets. Shifts in political leadership, trade policy, and monetary conditions prompted repeated reassessments of risk, valuation, and growth expectations. 

Markets responded to a series of defining developments, including the return of a Trump administration, the introduction of sweeping tariffs, a prolonged US government shutdown, and the Federal Reserve’s move into a new easing phase. At the same time, long-held assumptions around technology-led growth were tested as questions emerged over the pace of AI adoption and its ability to justify elevated valuations. 

Rather than being driven by a single catalyst, market behaviour in 2025 reflected the interaction of policy decisions, economic data, and structural change. This article outlines the key events that shaped market sentiment during the year and examines how different asset classes responded as conditions evolved. 

Key Points 

• Political and policy shifts in the United States, including a second Trump inauguration, sweeping tariff measures, and a prolonged government shutdown, acted as major catalysts for market repricing across equities, bonds, currencies, and commodities in 2025. 
• Monetary policy played a central role as the Federal Reserve moved from restrictive rates to a measured easing cycle, influencing asset valuations while highlighting the market’s sensitivity to guidance, data gaps, and fiscal uncertainty. 
• Technology-led optimism was increasingly questioned as AI bubble concerns gained traction, with slowing adoption, stretched valuations, and high-profile bearish positioning shaping sentiment despite continued capital inflows into the sector. 

Trump Inauguration 2025: Early Policy Signals for Markets 

Donald Trump was inaugurated for a second term on 20 January 2025, giving markets early clarity on political leadership and near-term policy sequencing. Attention quickly moved from the ceremony to Day One executive orders, which provided the first concrete signals on economic and trade priorities. 

Related read: Trump Trade 2025: How Trump’s Second Inauguration Could Shape Financial Markets 

US equities rose in the immediate aftermath, reflecting relief that no broad tariffs were announced on inauguration day. The Dow Jones Industrial Average gained 1.2%, the S&P 500 rose 0.8%, and the Nasdaq Composite advanced 0.6% ^[1]. The move was interpreted as reduced near-term trade disruption risk rather than a material shift in growth expectations. 

Energy policy produced a more uneven response. The declaration of a national energy emergency and the rollback of several clean energy measures weighed on the sector. Brent crude futures fell 1.1% to USD79.29 per barrel as markets priced in higher potential US supply ^[2]. Energy equities declined alongside oil prices, while renewable stocks came under pressure amid expectations of reduced policy support. 

Rates markets reflected a reassessment of tariff risk and Treasury supply. Government bonds gave back some of the prior week’s gains as optimism around a measured trade approach faded, reinforced by a 20-year Treasury auction. The 10-year yield rose about 3.5 basis points to 4.61%, remaining below the previous week’s highs after softer inflation data eased price-pressure concerns ^[3]. 

Currency markets were mixed. The US dollar swung against major peers as investors weighed which campaign pledges would translate into policy, while currencies with higher trade exposure—such as the Canadian dollar and Mexican peso—weakened amid renewed discussion of potential 25% tariffs from 1 February 2025 ^[4]. 

Overall, the inauguration acted as a sentiment reset rather than a volatility shock. Markets responded to the absence of immediate trade escalation while beginning to reprice sector and regional exposure based on policy direction. 

Trade Policy Escalation: The 2025 Tariff Announcements 

On 2 April 2025, the administration announced a sweeping tariff regime, often labelled the “Liberation Day tariffs”. A baseline 10% levy was applied to all imports, with additional “reciprocal” tariffs—up to 50% or more—on selected countries with persistent trade barriers or large surpluses with the US. 

Targeted measures followed, including a 25% tariff on imports from countries purchasing Venezuelan oil under a March executive order. While aimed at rebalancing trade and supporting domestic manufacturing, the measures raised concerns around retaliation and broader trade tensions. 

Impact on Stocks 

Markets reacted sharply to the tariff announcement, with equity indices experiencing pronounced declines amid rising risk aversion. On and around the tariff implementation date: 

• The Dow Jones Industrial Average (DJIA) fell over 5.5% in the immediate market sell-off. 
• The S&P 500 dropped approximately 6%. 
• The Nasdaq Composite declined by nearly 5.8%, bringing the technology-heavy index into bear market territory. 

These moves reflected broad-based selling pressure as investors recalibrated valuations in response to the economic implications of higher import levies and potential supply chain disruptions.  

The heightened uncertainty also contributed to a sustained rout in global equities, with some markets suffering double-digit losses in short intervals and key sectors with strong trade exposure underperforming more defensive asset classes. 

Market Reaction in Commodities 

The tariff announcements had mixed effects on commodity markets, with notable movements in key raw materials: 

• Oil prices generally weakened amid concerns that heightened trade tensions could dampen global demand. 
• Safe-haven assets such as gold rallied sharply, at times reaching historically high levels as investors sought shelter from equity volatility and macroeconomic risk. 

Some commodity segments also faced supply chain pressures and tariff-related pricing impacts, as higher duties on imported inputs began to feed through into broader cost structures. 

Forex Movements 

Tariff-related uncertainty was also evident in foreign exchange markets. As investors priced in the prospect of slower global growth and potential shifts in capital flows: 

• Some currencies of major trading partners have depreciated against the US dollar, reflecting concerns about export competitiveness and the impact on trade balances. 
• Safe-haven currencies, such as the Japanese yen and Swiss franc, saw periods of strength as risk sentiment deteriorated. 

These moves illustrated how tariff risk and the potential for countermeasures can ripple through currency markets, influencing relative valuations beyond bilateral trade pairs. 

Broader Market Implications 

The Trump tariff announcements in 2025 underscored how trade policy can act as a macro driver of market volatility and asset repricing. Across stocks, commodities and forex, traders and investors were compelled to adjust positions in anticipation of higher costs, lower global trade volumes, and a potential increase in inflationary pressures.  

While intended to protect domestic industries and reduce trade deficits, the tariff regime’s market impact highlighted the delicate balance between protectionist policy objectives and broader financial market stability. 

Warren Buffett’s Departure as CEO Marks a Historic Shift 

Warren Buffett, the veteran investor often referred to as the “Oracle of Omaha,” announced on 3 May 2025 that he intends to step down as Chief Executive Officer of Berkshire Hathaway at the end of the year, marking the conclusion of more than six decades leading the conglomerate.  

The announcement came at Berkshire’s annual shareholder meeting in Omaha, Nebraska, where Buffett revealed his plan to hand over day-to-day leadership to Greg Abel, the company’s vice-chair and long-time successor designate. Buffett will remain chairman of the board, providing continuity and institutional memory as the transition unfolds. 

Buffett’s decision to relinquish the CEO role brought a swift market reaction. In the days following the announcement, Berkshire Hathaway’s stock price declined by around 5%, eroding roughly US$59 billion in market value as investors adjusted to the news and reassessed the implications of leadership change for the company’s future strategy ^[5].  

The initial sell-off highlighted how closely Berkshire’s valuation has been tied to Buffett’s presence, particularly during periods of elevated macro uncertainty. The reaction suggested that part of Berkshire’s premium reflects confidence in Buffett’s capital deployment discipline, rather than balance-sheet strength alone. 

Attention has therefore shifted to how capital allocation may evolve under Abel’s leadership. Berkshire’s large cash position, historically deployed opportunistically during market dislocations, remains a central variable for investors. Any change in deployment pace, acquisition appetite, or risk tolerance could influence both earnings expectations and valuation multiples. 

Related article: Warren Buffett Steps Down: What’s Next for Berkshire? 

US Government Shutdown: Fiscal Deadlock and Market Implications 

The US government shutdown that began on 1 October 2025 became one of the longest in modern history, lasting 43 days before ending on 12 November 2025. The impasse stemmed from divisions between the Republican-controlled House and the Democratic-led Senate over healthcare subsidies, foreign aid to Ukraine, and proposed cuts to domestic discretionary spending.  

Its timing heightened market sensitivity, coinciding with elevated fiscal pressure, a budget deficit exceeding 6% of GDP, and record Treasury issuance. During the shutdown, around 750,000 federal employees were furloughed, while a further 1.3 million continued working without pay in essential roles ^[6]. The Office of Management and Budget warned that the economic cost could exceed USD8–10 billion if the disruption extended into late November. 

Related article: What Happens During a US Government Shutdown and Why It Matters? 

Market Impact and Asset-Class Reactions 

Financial markets during the 2025 shutdown reflected uncertainty rather than systemic stress. Equity indices showed intermittent volatility, particularly in sectors linked to government spending, including defence, infrastructure, and federal services. Treasury markets experienced brief dislocations, with short-term bill yields rising at times as investors priced in operational and settlement risks, in line with patterns seen during previous shutdowns. 

Currency markets also adjusted. The Dollar Index, which tracks the US dollar against a basket of currencies including the euro and yen, fell 0.35% to 99.14 ^[7]. At the same time, longer-term concerns around US fiscal credibility resurfaced, especially following earlier warnings from ratings agencies such as Fitch Ratings, which downgraded US sovereign credit in 2023. 

The Federal Reserve’s Path to Rate Cuts in 2025 

In 2025, the Federal Reserve adjusted policy against a difficult backdrop. Labour conditions softened, inflation eased only gradually, and two external shocks disrupted the policy setting. These were the April “Liberation Day” tariffs and a prolonged federal government shutdown in the fourth quarter, which limited the availability of official economic data. 

For most of the year, interest rates were held steady at restrictive levels. In the second half, the Federal Open Market Committee (FOMC) shifted focus. The priority moved to protecting employment as downside risks became clearer. By year-end, internal disagreement had increased, with three dissenting votes at the final meeting—the most since 2019. 

Timeline of 2025 FOMC Meetings and Rate Actions 

The Fed maintained a wait-and-see stance through mid-year before easing policy in stages. 

• 28–29 January: Hold at 4.25%–4.50%. 
• 18–19 March: Hold at 4.25%–4.50%. 
• 6–7 May: Hold at 4.25%–4.50%. 
• 17–18 June: Hold at 4.25%–4.50%. 
• 29–30 July: Hold at 4.25%–4.50%. 
• 16–17 September: Cut of 25 bps to 4.00%–4.25%. 
• 28–29 October: Cut of 25 bps to 3.75%–4.00%. 
• 9–10 December: Cut of 25 bps to 3.50%–3.75%. 

Market Reaction to the December Rate Cut 

The December rate cut was widely described as a “hawkish cut”. Rates moved lower, but guidance suggested limited scope for further easing. The 9–3 vote split unsettled markets, despite the cut itself being fully priced in. 

Equity Markets Rise on Rate Cut 

Equity markets rose after the Federal Reserve delivered an expected rate cut, with investors initially responding to the prospect of further easing. Gains were moderated as the accompanying guidance signalled a more cautious policy outlook. 

Indices: The Dow Jones Industrial Average rose by 1.1%, to close at 48,057.75. The S&P 500 added 0.7% to finish at 6,886.68, briefly trading above its previous record close of 6,890.89. The Nasdaq Composite increased 0.3% to 23,654.16 ^[8]. 

Bond Markets Reflect Uneven Easing 

Bond markets delivered a mixed response. Short-term yields moved lower following the rate cut, while longer-dated yields remained elevated, underscoring continued uncertainty around inflation and fiscal conditions. 

Yield curve: The benchmark US 10-year Treasury yield fell by 4.3 basis points to 4.143%, after trading between an intraday low of 4.137% and a three-month high of 4.209% ^[9]. The move positioned the 10-year yield to end a four-session advance, its longest run of gains in five weeks. 

Currency and Commodity Markets Respond to Rate Differentials ^[10,11] 

Currency and commodity markets adjusted as interest rate gaps between the US and other major economies narrowed. Price action reflected shifting yield expectations rather than changes in near-term growth assumptions. 

• US dollar: The Dollar Index, which tracks the greenback against a basket of currencies including the euro and yen, slipped 0.2% to 98.99. 
• Gold: Spot gold rose 1.2% to $4,280.08 per ounce, reaching its highest level in more than a month and marking its strongest level since 21 October. 
• Silver: Spot silver climbed nearly 4% to $64.22 per ounce, trading close to the session high of $64.31, which was near a record level. 

Psychological Context: The Data Gap 

Market reactions were also shaped by the recent 43-day federal government shutdown. Delays and distortions in official data for October and November reduced confidence in near-term economic signals. As a result, investors relied more heavily on private indicators and informal reporting, which muted the typical response to a major policy event. 

AI Bubble Fear 

By 2025, concerns about a potential AI bubble had moved into mainstream market discussion. Rapid advances in model capability continued, but questions emerged around valuation discipline, capital intensity, and the pace at which commercial adoption could justify investment levels. 

As the year progressed, these concerns evolved from isolated doubts into a recurring theme shaping sentiment across technology and broader equity markets. 

Early Signals in 2025 

Concerns around a potential AI bubble began to surface early in 2025. The trigger was the release of DeepSeek’s R1 open-source model, which challenged the prevailing belief that leading AI systems required vast capital investment and advanced hardware ^[12]. The model suggested that high-quality performance could be achieved at lower cost, raising questions about the durability of competitive advantages held by established players. 

This development prompted early reassessments of cost structures and long-term profitability across the AI value chain, particularly among infrastructure-heavy firms. 

August Escalation: From Caution to Market Theme ^[13] 

Bubble fears intensified in late August following the publication of a study by the Massachusetts Institute of Technology (MIT). The findings unsettled investors by highlighting a widening gap between investment and outcomes: 

• Return on investment: Despite an estimated $30–40 billion in enterprise spending, 95% of generative AI pilots failed to deliver measurable profit or operational impact. 
• Deployment gap: Only 5% of organisations had successfully integrated AI tools into production at scale. 
• Market response: Major technology stocks sold off sharply as analysts focused on the so-called “GenAI paradox”, where technical progress was not translating into productivity gains. 

The report shifted AI bubble concerns from a long-term risk to an immediate valuation issue. 

October Shift in Institutional Sentiment 

By October 2025, institutional positioning had turned more defensive. 

• Fund manager surveys: A survey by Bank of America found that 54% of global fund managers viewed AI-related equities as being in bubble territory ^[14]. 
• Late-cycle framing: On 1 October 2025, Morgan Stanley described the AI-driven rally as entering its “seventh inning”, citing weaker free cash flow among cloud providers, slowing growth in core revenue segments, and increasingly speculative deal activity ^[15]. 
• Credit market signals: Credit default swap markets began to reflect fatigue with the rising levels of debt issued to finance AI infrastructure expansion. 

Together, these signals pointed to growing unease about sustainability rather than technology viability. 

Intensification Into Year-End 

By late 2025, several institutions noted that bubble concerns had strengthened further. Morgan Stanley’s hedge fund outlook in December pointed to “signs of excess” across the sector, particularly around funding expectations tied to future revenue rather than current cash flows. 

At the same time, Capital Economics observed that while AI-related valuations could extend into 2026, the market already displayed familiar bubble characteristics. These included increasingly optimistic narratives and a growing disconnect between expectations and realised outcomes. 

High-profile bearish positioning added to the debate but did little to settle it. Michael Burry’s disclosed bets against parts of the AI trade attracted significant attention, yet markets largely treated these positions as a sentiment signal rather than a decisive catalyst. AI-linked equities continued to draw capital, suggesting that scepticism alone was insufficient to reverse momentum in the absence of clear deterioration in earnings or adoption trends. 

At this stage, the AI market appeared less constrained by technical limits than by a “learning gap”, where enterprise adoption and integration had yet to catch up with the pace of innovation. 

Stock Market Reaction 

Market pricing reflected these shifts at key moments throughout the year. 

• The DeepSeek shock (January 2025): The release of a low-cost Chinese AI model undermined assumptions around capital intensity. On 27 January, the Nasdaq fell more than 3%, while NVIDIA declined 17% in a single session, wiping out roughly $589 billion in market value ^[16]. Shares of other semiconductor firms, including Broadcom and Marvell, also recorded double-digit losses. 
• The MIT report sell-off (August 2025): Following the release of the MIT study, technology stocks retreated as investors reassessed growth assumptions. Analyst focus shifted to the mismatch between innovation speed and real-world deployment, reinforcing broader concerns around valuation discipline. 
• Michael Burry disclosures (November 2025): Market volatility increased after filings showed that Michael Burry had built sizeable short positions in AI-linked stocks, including Palantir Technologies and NVIDIA. The Nasdaq Composite fell 2.04%, while Palantir dropped nearly 8% and NVIDIA closed about 4% lower ^[17]. 

Market Takeaways as 2025 Draws to a Close 

Taken together, the defining market events of 2025 highlighted how quickly sentiment can shift when policy, leadership, and structural assumptions are challenged. From trade shocks and fiscal deadlock to monetary easing and questions around AI valuations, markets were repeatedly forced to reprice risk across asset classes. 

Rather than being driven by a single dominant theme, 2025 was shaped by overlapping pressures. Political decisions influenced trade and currencies, central bank actions reshaped rate expectations, and technological optimism was tested against economic reality. For traders and investors, the year reinforced the importance of monitoring policy signals, capital flows, and adoption trends—not in isolation, but as part of an increasingly interconnected market environment. 

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