Last month, the S&P 500 chart began to resemble a rollercoaster ride, with more dips than rises, resulting in a decline of about 3.8%. Among small caps, the Russell 2000 index, which measures the market’s overall risk aversion, fell 6.8%. Finally, the Nasdaq index recorded a decline of 4.7%.

In contrast, the DXY rose 2.6% and 10-year US Treasury yields rose an impressive 9.8%. Yields on 20- and 30-year Treasury bonds rose 8.5% and 8.4%, respectively. Overall, investors appear to have become more cautious in recent weeks and have flocked to safer assets.

What caused this change in mood?

The bout of volatility occurred on December 18, the day of the Federal Reserve meeting. In addition to the expected 25 basis point rate cut, the Fed “surprised” markets by revising its planned rate cuts for 2025, reducing them from four to two, citing slower progress in fighting inflation.

Then the negative factors kept coming: Trump threatened further tariffs against the rest of the world, the Biden administration imposed tougher sanctions on the Russian energy sector and better than expected US economic and labor market data.

All of this raised concerns that prices in the U.S. could rise again, which could mean the Fed won’t cut interest rates this year and may even have to raise them to prevent inflation from accelerating. This led to greater market fear and a cautious withdrawal from riskier assets.

But could these just be temporary steps?

Despite a choppy start to the year, analysts at major banks continue to predict that the S&P 500 will break through 6,600 by the end of December. However, relying solely on this as a guaranteed sign that the bull market will continue does not seem promising.

Much will depend on how world events develop. For example, if new sanctions against Russia result in a loss of about 800,000 barrels of oil per day, oil prices will likely initially rise, which could drive up the cost of goods and services since oil is a key commodity in almost every aspect of our lives.

Another factor to consider is geopolitical risks. Although Trump promised to resolve all crises almost immediately after taking office, the reality could be much bleaker: existing conflicts could worsen and new ones could emerge, such as between Iran and Israel or between Armenia and Azerbaijan.