How Trump's tariffs and fight with the Fed shaped the U.S. stock market in 2025

Group 1: Tariffs and Market Reactions - Trump's announcement of sweeping tariffs in April led to a significant market downturn, with the S&P 500 dropping nearly 5% on April 3 and an additional 6% the following day due to fears of a trade war with China [1][2] - The tariffs caused a decline in the value of the U.S. dollar and affected the U.S. Treasury market, prompting Trump to pause the tariffs on April 9 after observing market reactions [2] - Despite initial turmoil, Wall Street experienced a strong summer driven by enthusiasm for artificial intelligence technology and positive corporate earnings, alongside three interest rate cuts by the Federal Reserve [3] Group 2: Federal Reserve and Interest Rates - Trump actively lobbied the Federal Reserve to lower interest rates, challenging the traditional independence of the Fed in making monetary policy decisions [4] - The Fed maintained steady interest rates through August as inflation remained above the 2% target, which frustrated Trump despite his own trade policies contributing to inflation concerns [5] - Tensions between Trump and Fed Chair Jerome Powell escalated, with Trump publicly criticizing Powell's management, raising concerns about the Fed's independence [6][7] Group 3: Global Market Performance - U.S. stocks achieved double-digit gains, but many foreign markets outperformed, with South Korea's KOSPI experiencing its largest gain in over two decades due to technology investments [8] - Japan's Nikkei 225 also saw significant gains, supported by a focus on AI and a $135 billion stimulus package following national elections [9] - European markets performed well, with Germany's DAX benefiting from increased government spending on infrastructure and defense, while the European Central Bank's interest rate cuts provided additional support [9][10]