Market Optimism Revives as Trump’s Pro-Business Agenda Takes Center Stage
After weeks of sluggish performance, US stocks finally showed signs of life following a better-than-expected inflation reading. The S&P 500, which had plummeted to its lowest levels since the election, is now expected to receive a boost from President-elect Donald Trump’s pro-business agenda.
Trump’s Stock Market Sensitivity
During his first term, Trump closely tied the stock market’s performance to his administration’s success. Investors anticipate that he will remain sensitive to any market downturns in the coming months. This sensitivity could lead to policies that support the stock market, such as deregulation, which has been a boon for banks and could encourage more dealmaking.
Crypto-Friendly Administration and Lower Corporate Tax Rates
Trump’s administration has already sent the cryptocurrency market soaring, and lower corporate tax rates could help boost corporate profits across industries. His “America First” mantra has also instilled optimism among small businesses, which could benefit small-cap companies.
Caution Amidst Optimism
However, Bank of America investment strategist Michael Hartnett warns that the market’s high valuation and concentration – with just 10 stocks making up nearly 40% of the index – will likely cap upside for the S&P 500. Additionally, the sustainability of rallies in “Trump trades” like small caps, energy stocks, and financials remains a question.
Volatility Ahead
Strategists agree that Trump’s policies will continue to support the US equity market, but gains will not come in a straight line. “January volatility prior to Trump’s inauguration reinforces the core view of a more volatile year ahead,” notes Julian Emanuel, who leads the equity, derivatives, and quantitative strategy team at Evercore ISI. Emanuel predicts the S&P 500 will finish 2025 at 6,800, or about 13% higher than current levels.
A Swing Between Risk-On and Risk-Off Sentiment
Trump’s administration is expected to bring a continued swing between “risk on” and “risk off” sentiment among investors. As the market navigates this volatility, investors will be closely watching the impact of Trump’s policies on the stock market.
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