The first two months of 2025: New government in power for a month, market faces turbulence and opportunities

In January and February 2025, as the new government completed its first month in office, the U.S. economy and financial markets underwent a series of significant changes. On one hand, the policies introduced by the new administration sparked market expectations; on the other hand, breakthroughs in the field of artificial intelligence also impacted traditional tech stocks. At the same time, the release of key economic data, adjustments to the regulatory framework, and the acceleration of technological innovation collectively drove the crypto market to experience intense fluctuations.

The U.S. economy has shown a complex situation over the past two months. Although the GDP growth rate for the fourth quarter remained at 2.3%, multiple indicators show that the pace of economic growth is slowing. February's non-farm payroll data fell short of expectations, and wage growth has slowed to its lowest level in recent times. The consumer confidence index has declined for three consecutive months, reflecting public concerns about decreasing purchasing power.

In terms of inflation, the core CPI in January increased by 2.5% year-on-year, a slight decline from the previous month. The annual rate of the core PCE price index fell to 2.6%, the lowest level in recent times. However, the tariff policy announced by the new government may bring new uncertainties to inflation. The imposition of a 10% tariff on imported goods from Mexico and Canada is expected to raise the costs of important goods such as automobiles and agricultural products, potentially leading to an additional increase of 0.3-0.5 percentage points in the CPI in the second quarter.

In terms of interest rate policy, the market generally expects the Federal Reserve to maintain the current interest rates in the short term. However, considering the uncertainty of inflation and the potential impacts of new tariff policies, the Fed's decision on interest rate cuts remains uncertain. Currently, the core contradiction facing the U.S. economy is the tug-of-war between slowing growth and resilient inflation. The new government's tariff policy not only exacerbates the complexity of this issue but may also affect the pricing logic of global supply chains, increasing uncertainty in the global economy.

The major breakthroughs in the field of artificial intelligence have also had a significant impact on the market. Emerging AI companies have greatly reduced computational power requirements through algorithm optimization, driving the industry from a "computational power race" to "algorithm efficiency," reshaping market expectations for AI infrastructure demand. This change has undermined the competitive advantages that traditional tech giants built on high capital expenditures.

Affected by the dual impact of breakthroughs in AI technology and new tariff policies, the US stock market showed lackluster performance in February. The Nasdaq index, heavily weighted with tech stocks, suffered the most, falling 4% during the month, marking its worst monthly performance in nearly a year. The Dow Jones Industrial Average and the S&P 500 also declined by 1.58% and 1.42%, respectively.

The cryptocurrency market has also not been spared from this volatility. The correlation between Bitcoin and the Nasdaq index has risen to a two-year high, indicating that the connection between crypto assets and traditional financial markets is becoming increasingly close. After the new government took office, the crypto sector welcomed a series of favorable policies, including the establishment of a dedicated working group and the formulation of new regulatory plans. However, affected by external factors, Bitcoin's price still saw a significant correction in February, with a monthly decline of over 17%.

It is worth noting that Bitcoin has shown a certain level of resilience during this round of adjustments. Some institutional investors view this short-term volatility as an opportunity for long-term allocation, increasing their holdings of Bitcoin during the price pullback. At the same time, the price trends of Bitcoin and gold are increasingly converging, further highlighting its "digital gold" attributes.

Currently, the cryptocurrency market is at a critical turning point. The influence of traditional market narratives such as halving cycles and ETF inflows is weakening. The market is shifting from "policy arbitrage" to "value creation" and from "speculation-driven" to "technology-driven". In the future, the integration of AI and cryptocurrency technology may become a new growth point.

Overall, the first two months of 2025 have seen the market undergo a "Game of Ice and Fire". New government policies, technological innovations, and economic uncertainties are intertwined, presenting both challenges and opportunities for the market. Although short-term volatility has intensified, this chaotic state may give rise to new development opportunities in the long run. As has been the case throughout market history, new growth often sprouts amidst turmoil and uncertainty.