When Donald Trump returned to the presidency on January 20, 2025, Wall Street responded with short-term optimism. Investors hoped for a return to the business-first mindset of his first term, which had seen tax cuts and deregulation. But within months, confidence began to slip. Trade policies, rising prices, and consumer fears quickly replaced the early hope, leading many to question whether the new administration could maintain economic stability. Digging down into the more specific data points that have affected the market recently, the trend has shown that 2025 may not be a good year compared to its average growth for the stock market.
Early Optimism and Market Reaction
In the first few weeks after Trump’s inauguration, the U.S. stock market showed a modest bump. Investors expected a wave of deregulation, corporate tax cuts, and more spending in traditional industries like oil and manufacturing. The S&P 500 hit 24 new 52-week highs by late January 2025, a sign of early investor optimism (Nasdaq).
But by February, cracks were already beginning to show. Market indexes began to slip as investors grew nervous about rising inflation and a lack of detail around Trump’s proposed economic plan. The Dow Jones Industrial Average, which had peaked shortly after the election, began a slow decline. As of March 28, the Dow was down 4.5% since Trump’s return (StatMuse). The S&P 500 also dropped, with volatility driven by uncertainty over Trump’s next moves on trade and interest rates.
Tariffs and Trade Fears Shake Investor Confidence
One of the biggest reasons for the market’s decline has been Trump’s aggressive trade strategy. In early February, just weeks into his presidency, Trump announced sweeping tariffs on goods from Mexico, Canada, and China—25% on goods from North America and 10% on Chinese imports (Wikipedia). The move was meant to protect American manufacturing and reduce the trade deficit, but it caused immediate concerns about price hikes and global retaliation.
Trump then followed with a major announcement in late March: a permanent 25% tariff on all foreign-made cars (New York Post). While the intention was to strengthen domestic auto production, economists warned it would raise prices for consumers and disrupt supply chains. Stocks for auto companies—especially those dependent on global parts—sank. American companies that rely on imported goods and materials also saw their costs rise, prompting concerns that these tariffs might actually slow economic growth instead of helping it.
Inflation, Consumer Confidence, and the Real Economy
Even before Trump took office again, inflation had been one of the country’s biggest economic problems. The Federal Reserve had been raising interest rates steadily since 2023 to cool down prices, but costs for food, rent, and energy remained high in early 2025. The new tariffs added more pressure, making imported goods even more expensive.
Consumers quickly started to feel the impact. In February, the Conference Board’s Consumer Confidence Index dropped sharply to 98.3 from 105.3 in January—the largest single-month fall since early 2020 (AP News). This drop suggested that people were becoming more cautious about spending. And since consumer spending accounts for nearly 70% of U.S. economic activity, this shift sent alarms through the business community.
Retailers like Walmart and Target reported weaker-than-expected sales for February and March. Economists at Deloitte noted that even though inflation was slowly declining, the combination of higher prices and political uncertainty had made consumers more hesitant to spend (Deloitte). That hesitation is already slowing down the economic recovery many hoped would follow the 2024 election.
Conclusion
Three months into Donald Trump’s second term, the U.S. economy is showing early warning signs. The brief post-inauguration market rally has reversed, weighed down by new tariffs and investor concern about rising prices and weaker consumer spending. Leo Xing (10), a follower of the stock market currently, believes “if the current economic situation continues, we might see a situation like the ’70s where inflation keeps rising and average GDP keeps on declining which weakens everything.” The labor market remains strong for now, but it may not be enough to hold up the economy if trade tensions deepen and confidence continues to erode. “At first, it looked like the stock market was doing great, but now it’s kind of scary to see it drop so fast,” commented high school student Timothy Knaw (11). “I don’t really know what’s going to happen next.” While Trump has promised to restore American economic strength, the early results suggest a rocky road ahead. Investors, businesses, and everyday Americans are all waiting to see whether these policies lead to a new era of growth—or mark the beginning of an economic downturn.
