US stocks have looked sluggish at times over the past few weeks as rising rates and debate over whether the Federal Reserve will cut interest rates in 2025 the S&P 500 sent (^ GSPC) to their lowest levels since the election.
But a better-than-expected inflation reading on Wednesday helped US markets up, and Bank of America investment strategist Michael Hartnett believes further downside in the S&P 500 will be “guarded” by President-elect Donald Trump. Trump in the coming months.
During his first term as president, Trump saw the stock market as a barometer for the success of his own administration. Expectations from many investors are that Trump will remain sensitive to a pullback in US stocks during his next turn.
And while tariffs are a concern for investors and corporations, other Trump policies may be positive for the stock market.
There has been deregulation be seen as a boost for banks and could encourage more deal-making after a challenging few years. And more crypto-friendly administration has sent that market pocket soaring, and lower corporate tax rates could help corporate profits across industries. Trump is ““America First” mantra. have also a boost to optimism among small businesses and could be seen as a tail for small cap companies as well.
Hartnett warned, however, that other factors such as valuation and the high market concentration seen in the index – with just 10 stocks accounting for almost 40% of the index – will probably also put a cap on his face for the S&P 500.
And there remains the question of whether rallies across some “Trump trades” such as small caps, energy stocks, and financials will still take off after the election just to track most of their earnings lead into the inauguration.
Hartnett added that if Trump 2.0 and a fall in rates can't send the small cap Russell 2000 (^RUTH) index above the peak in 2021, asset allocators are likely to reduce their overweight position in stocks.
Strategists broadly agree that Trump's policies it could still be a tail for the US equity market but don't believe that those gains are going to come in a straight line.
“January's volatility ahead of Trump's 1/20 Inauguration reinforces the core view of a more volatile year ahead,” Julian Emanuel, who leads the equity, derivatives, and quantitative strategy team at Evercore ISI, wrote in a note to Thursday evening clients.
Emanuel, who sees the S&P 500 ending 2025 at 6,800, or about 13% above current levels, still argues that the Trump administration will bring a continued swing between “risk on” and “risk on” sentiment. off” among investors.