The Trump Effect: Policy Continuity and Market Volatility in 2025

The U.S. financial markets in 2025 have become a barometer for the interplay between political stability and investor sentiment, with President Donald Trump’s public appearances and policy continuity serving as both a catalyst and a wildcard. Trump’s second-term agenda, anchored by Project 2025—a conservative policy blueprint developed by the Heritage Foundation—has reshaped federal governance while introducing volatility into global markets. His absence from public view in late 2025, coupled with visible health concerns, has further amplified uncertainty, testing the resilience of investor confidence.

Policy Continuity and the Shadow of Project 2025

Trump’s administration has systematically advanced policies aligned with Project 2025, including dismantling the Department of Education, curtailing diversity, equity, and inclusion (DEI) initiatives, and shifting emergency preparedness costs to state governments [3]. These moves reflect a deliberate effort to consolidate executive power and prioritize a right-leaning social and economic agenda. For instance, Executive Order 14318 streamlined federal permitting for AI data centers, accelerating infrastructure development while revoking climate-related requirements [2]. Such actions signal a clear policy continuity, even as Trump’s personal visibility wanes.

However, the implementation of these policies has not been without friction. The administration’s aggressive tariff strategy—targeting China, Mexico, and Canada—has introduced economic instability. Tariffs, which rose to an average effective rate of 15% by mid-2025 (the highest since the Great Depression era) [4], have disrupted global supply chains and triggered retaliatory measures. While corporate tax cuts and deregulation have buoyed certain sectors, the uncertainty surrounding tariff timelines and scopes has led to market corrections. The S&P 500, for example, fell nearly 2.7% in March 2025 following Trump’s remarks about potential recession risks tied to his policies [2].

Investor Sentiment: Between Optimism and Risk Aversion

Investor sentiment in 2025 has been a tug-of-war between pro-business optimism and trade-related anxiety. A 2025 survey of UK wealth managers found 94% favoring U.S. equities under Trump’s policies, citing tax cuts and deregulation as growth drivers [1]. Yet, 61% of investors surveyed by the American Association of Individual Investors expressed a bearish outlook in early 2025, reflecting concerns over trade wars and inflation [3]. This duality has prompted a shift in asset allocation: while some investors cling to U.S. equities, others are diversifying into alternative assets like real estate, fine art, and cash [1].

The Federal Reserve’s cautious stance has further complicated the landscape. Despite Trump’s public criticism of Fed Chair Jerome Powell and threats to replace him, the central bank has resisted rate cuts, maintaining a focus on inflation control. The 10-year Treasury yield, a key indicator of investor confidence, remained below 4.30% as of late August 2025, suggesting that long-term inflation expectations have not yet spiked [1]. However, the OECD’s projection of U.S. GDP slowing to 1.6% in 2025 and inflation reaching nearly 4% underscores the fragility of this equilibrium [4].

The Uncertainty Premium: Trump’s Public Absence and Market Reactions

Trump’s sporadic public appearances have added a layer of unpredictability. His absence in late 2025, marked by visible bruising on his hands and speculation about health, has fueled concerns over leadership stability. Vice President JD Vance’s affirmation of Trump’s capability, while acknowledging contingency plans, did little to quell rumors [1]. This uncertainty has spilled into markets, with the S&P 500 erasing gains made since the 2025 election and approaching a 10% correction [6].

The market’s reaction to Trump’s policies is not merely about the policies themselves but the uncertainty they generate. As one analyst noted, “The volatility is much less about the bad news of tariffs and much more about the uncertainty of tariffs” [2]. This uncertainty premium has driven a flight to safety, with gold and bonds outperforming equities in Q2 2025 [5].

Conclusion: Navigating the Trump 2.0 Landscape

For investors, the 2025 landscape demands a nuanced approach. While Trump’s policy continuity offers tailwinds for sectors like energy and defense, the administration’s trade policies and leadership uncertainties necessitate hedging strategies. Defensive assets, shorter-duration fixed income, and diversified portfolios remain critical. The Federal Reserve’s ability to balance inflation control with growth support will also be pivotal.

As the year progresses, the interplay between Trump’s public appearances and market confidence will remain a key variable. The question is not whether Trump’s policies will shape markets, but how investors will adapt to the volatility they generate.

Source:
[1] Stock Market Under the Trump Administration [https://www.usbank.com/investing/financial-perspectives/market-news/stock-market-under-trump.html]
[2] Trump Administration Highlights: U.S. Stocks Have Worst ... [https://www.nytimes.com/live/2025/03/10/us/president-trump-news]
[3] How Trump's policies and Project 2025 proposals match [https://www.cbsnews.com/news/trump-project-2025-first-100-days/]
[4] 2025 Mid-Year Outlook: U.S. Stocks and Economy [https://www.schwab.com/learn/story/us-stock-market-outlook]
[5] Mid-year market outlook 2025 | J.P. Morgan Research [https://www.jpmorgan.com/insights/global-research/outlook/mid-year-outlook]
[6] Trump Administration Highlights: U.S. Stocks Have Worst ... [https://www.nytimes.com/live/2025/03/10/us/president-trump-news]