Wall Street faced an unexpectedly turbulent start to 2025.
A steep selloff in the U.S. bond market caused ripples across financial markets, leaving investors questioning whether this volatility will persist throughout the year. BourseWatch consulted portfolio managers and analysts about their 2025 investment strategies and how individuals can prepare for potential market instability.
“Nobody can predict when volatility will hit in 2025. Investors should maintain a balanced portfolio, stay invested, and use downturns as opportunities to rebalance and buy the dip,” advised Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors.
Bonds Under Pressure
The U.S. government bond market took a hit in the year’s first trading week. Longer-term Treasury yields surged to eight-month highs due to growing concerns over budget deficits and the potential inflationary impact of President-elect Donald Trump’s policy agenda. Robust economic data also fueled rising yields, dampening expectations for aggressive Federal Reserve rate cuts.
On Thursday, the 10-year Treasury yield stood at 4.68%, its highest since April 2024, while the 30-year yield reached 4.92%, marking a peak not seen since November 2023.
Brent Schutte, CIO at Northwestern Mutual Wealth Management, emphasized an overweight allocation to fixed income over equities due to high stock valuations and lingering economic uncertainties. “Higher interest rates make Treasurys increasingly attractive compared to an overvalued stock market,” he noted.
Strategists favor short- to intermediate-term fixed-income investments, such as Treasurys with maturities between one and ten years, which offer solid yields with less sensitivity to rate changes. Sid Vaidya, U.S. wealth strategist at TD Wealth, highlighted combining these bonds with high-quality credit to achieve 5%-6% returns, offering appealing income for long-term investors.
Stocks and Market Outlook
Rising Treasury yields also weighed on stocks, particularly in the tech sector. The Nasdaq Composite fell nearly 0.7% this week, with the S&P 500 and Dow Jones dropping 0.4% and 0.2%, respectively.
Market analysts are cautious about short-term opportunities in high-growth tech stocks. Brent Schutte noted that while some parts of the economy, like AI-driven tech earnings, have propped up the market, sustained rate hikes could eventually drag down broader economic performance.
The upcoming inauguration of President Trump in January and the first earnings season of 2025 could significantly impact markets. Analysts will scrutinize whether Trump’s policies align with his campaign promises and how they influence portfolios. Next week, major banks like JPMorgan Chase, Wells Fargo, and Citigroup are set to report fourth-quarter 2024 earnings.
“If earnings guidance is cautious and yields remain high, it could challenge the continuation of 2024’s stock rally,” warned Ken Mahoney, CEO of Mahoney Asset Management.
Investors also await the December jobs report, the year’s first major economic release, expected Friday morning at 8:30 a.m. Eastern.
