Reuters Compares Early-Year Forecasts with Actual Market Trends
Tariff Shock Feared by Wall Street Turns Out Limited
S&P Surpasses Expectations, Dollar Index Declines
Many of Wall Street's forecasts for the U.S. stock market, the dollar, and monetary policy in 2025 have diverged significantly from actual market trends. While President Donald Trump's aggressive tariff policies were somewhat anticipated, the prevailing assessment is that the financial market's response deviated from Wall Street's original scenarios. Contrary to expectations, the stock market rose, the dollar weakened, and monetary policy turned out to be much more accommodative than projected.
On the 24th, ahead of the Christmas holiday, people are passing by in front of the New York Stock Exchange (NYSE) in the United States. Photo by AFP
On December 29 (local time), Reuters compared early-2025 expert forecasts with actual market movements and summarized some of Wall Street's most notable misjudgments this year.
The biggest miss was the surprisingly limited shock that President Trump's second-term tariff policies had on financial markets. President Trump announced reciprocal tariffs on April 2 to address trade imbalances, which initially sent global financial markets, including the United States, into temporary turmoil. U.S. Treasury yields soared, and the benchmark S&P 500 index plunged about 15% in just three days. However, after President Trump postponed the tariff measures and the Treasury market stabilized, the stock market quickly recovered its losses and rebounded. Some in the market mocked this as 'TACO (Trump Always Chickens Out)', but ultimately, the flexibility of the policy is credited with minimizing market disruption.
In a survey conducted by Reuters at the end of last year, experts predicted that the S&P 500 index would reach 6,500 points by the end of 2025, representing an annual gain of 9%. In reality, however, the S&P 500 is now approaching the 7,000 mark, making it likely to record nearly double the initially projected rate of increase.
The movement of the dollar was also the opposite of market expectations. The dollar index, which measures the value of the dollar against the currencies of six major countries, has fallen by nearly 10% this year. In the first half alone, it plummeted 12%, the largest drop in about 50 years since former President Richard Nixon abandoned the gold standard.
Wall Street anticipated that high tariffs would fuel inflationary pressures, leading to a tightening of U.S. monetary policy and a stronger dollar. However, global investors, concerned about policy uncertainty, reduced their holdings of dollar assets and strengthened their hedging strategies against exchange rate volatility. In addition, the actual inflationary impact of the tariffs was limited, and the Federal Reserve cut its benchmark interest rate by 0.25 percentage points three times in a row starting in September. This contrasts sharply with the interest rate futures market’s expectation just a year ago that there would be only one rate cut in 2025.
The Chinese yuan also defied Wall Street's expectations. At the beginning of the year, experts predicted that China would devalue the yuan to offset the tariff burden and boost exports, but the actual exchange rate trend was the opposite. The yuan strengthened to the 7-yuan-per-dollar level, its highest in 14 months. While China's exports to the United States fell by 20%, exports to other regions increased, and China's annual trade surplus is expected to exceed 1 trillion dollars.
Reuters analyzed, "For now, it seems that investors are gradually adapting to Trump's new economic policies," adding, "The trade issues that dominated 2025, the artificial intelligence (AI) bubble, the rising federal government debt, and concerns over central bank independence remain important issues, and next year could also be highly volatile."
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