Stock Market on Jan. 24, 2025: S&P 500 ends below record high as tech slumps, but posts big weekly gain along with Nasdaq and Dow after Trump's return to White House - MarketWatch

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### **A Surprising Week on Wall Street: Stocks Slip But Still Score a Big Win**

**January 24, 2025 –** In a classic case of "don't judge a day by its drop," the U.S. stock market had a mixed but ultimately positive week. On Friday, January 24th, the S&P 500 index closed slightly down, pulled lower by a slump in major technology companies. However, this small daily loss did little to erase the index's strong performance over the entire week, which saw significant gains.

The same story played out for the Nasdaq (heavily focused on tech) and the Dow Jones (which includes 30 major companies). All three posted their best weekly gains in months. This surge was widely attributed by analysts and news outlets like MarketWatch to the political event that defined the week: the inauguration of Donald Trump for his second non-consecutive term as President.

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#### **1. Historical Background: From Bull Markets to Political Shocks**

To understand why the market reacted this way, we need to look back a few years.

* **The Pre-2024 Landscape:** The years leading up to 2024 were a rollercoaster. The market crashed in early 2020 due to the COVID-19 pandemic but then embarked on a historic bull run, fueled by government stimulus and the rise of tech companies. This run was interrupted in 2022 by high inflation, which led the Federal Reserve to rapidly raise interest rates, causing a market slump.

* **The 2024 Election:** The entire year of 2024 was dominated by the presidential election. Markets generally dislike uncertainty, and the close race created a "wait-and-see" attitude among many investors. They were hesitant to make big moves without knowing what the new administration's policies would be.

* **A Pattern of Reaction:** Historically, the stock market has often rallied after a presidential election, regardless of the winner. This is simply because the uncertainty is removed. Businesses and investors feel they can finally make plans again. The reaction to Trump's return is a powerful example of this pattern.

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#### **2. General Public Opinion: Why the Market Cheered**

The immediate positive reaction from investors was largely based on expectations of policies seen as "business-friendly." The common views are:

* **Expectation of Lower Taxes:** There is a strong belief that the new administration will push to extend the tax cuts passed during Trump's first term, which are set to expire soon. Lower taxes mean companies keep more of their profits, which is generally good for their stock prices.

* **Deregulation Hopes:** Many investors expect a reduction in regulations for industries like energy (oil and gas), finance, and healthcare. The idea is that with fewer rules, these companies can operate more freely and cheaply, potentially boosting their earnings.

* **Toughness on Trade:** Some market segments, particularly manufacturing and energy, anticipate a more aggressive stance on international trade deals, which they believe could protect American companies from foreign competition.

In short, the general opinion is that a Trump administration will create an environment where it is easier and more profitable for companies to do business, which justifies higher stock prices.

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#### **3. Counterarguments: A Word of Caution**

Not everyone is convinced the celebration is warranted. Several critics and financial experts urge caution, pointing out potential risks:

* **Inflation Concerns:** The proposed policies, particularly large tax cuts, could involve significant government spending. This could reignite inflation, which had only recently been brought under control. If inflation spikes again, the Federal Reserve might be forced to raise interest rates, which is typically bad for stock prices.

* **Trade War Risks:** While some industries might benefit from tough trade talk, others could be severely hurt. Companies that rely on global supply chains or export their goods could face retaliatory tariffs from other countries, hurting their sales and profits.

* **The "Buy the Rumor, Sell the News" Effect:** This old market saying suggests that investors buy stocks on the *expectation* of good news (the "rumor" of pro-business policies) and then sell them when the news actually happens (the "news" of the inauguration). The Friday tech slump could be an early sign of this, as some investors decided to take their weekly profits and wait.

* **Long-Term Uncertainty:** Political promises don't always become reality. The ability to pass sweeping tax and regulatory changes depends on Congress, and the process can be slow and unpredictable. The initial market joy could fade if the promised policies face delays or significant changes.

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#### **4. Implications: What This Teaches Us**

The events of this week offer several important lessons for everyone, from Wall Street experts to everyday people with a retirement account.

* **Markets Look Forward, Not Backward:** Stock prices are based on what investors think will happen *in the future*, not what is happening today. The rally was based on expectations for the next four years, not the current economic data.

* **Politics and Markets Are Deeply Linked:** It's impossible to completely separate the two. Government policy on taxes, regulation, and trade directly impacts corporate profits and investor confidence.

* **Diversification is Key:** The tech slump on Friday is a perfect reminder. Even during a great week, not all sectors move together. Spreading investments across different types of companies (tech, healthcare, energy, etc.) helps protect against a downturn in any single area.

* **Avoid Knee-Jerk Reactions:** The biggest mistake an investor can make is to react emotionally to daily headlines. A single day's drop, even at the end of a strong week, is not a trend. Successful investing is about a long-term strategy, not chasing the news of the day.

**The Bottom Line:** The week ending January 24, 2025, demonstrated the stock market's complex nature. It celebrated a removal of uncertainty with a strong rally but also showed signs of caution with a late-week pause. It serves as a reminder that markets are driven by a constant tug-of-war between hope for the future and fear of the risks that may lie ahead.