Stocks could be ‘protected’ from steep declines by Trump: BofA
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, sent the S&P 500 (^GSPC) to the lowest level since the election.
But Wednesday’s better-than-expected inflation reading helped U.S. markets rally, and Bank of America chief investment strategist Michael Hartnett believes further declines in the S&P 500 will be “protected” by President-elect Donald Trump in the coming months.
In his first term as president, Trump viewed the stock market as a barometer for the success of one’s administration. The expectation of many investors is that Trump will remain sensitive to the pullback in US stocks during his upcoming turnaround.
And while the tariffs worry investors and corporations, other Trump policies could be positive for the stock market.
Deregulation has happened seen as a boon for banks and may encourage more deals after a difficult few years.Furthermore crypto-friendly management That pocket of the market is growing, and lower corporate tax rates could help corporate profits in a variety of industries.“America First” mantra also has increased optimism among small businesses and can be seen as a tailgate for small cap companies as well.
Hartnett, however, cautioned that other factors, such as high market valuation and concentration, which appear in the index; just 10 stocks make up about 40% of the index — likely also put a cap on the S&P 500.
And the question remains whether there will be rallies in certain “Trump trades” such as small caps, energy stocks and financials after the post-election takeoff. only to trace most of their achievements leading up to the inauguration.
Hartnett added that unless Trump 2.0 and falling interest rates can lead to a small-cap Russell 2000 (^RUTH) index remains firmly above its 2021 high, asset managers are likely to reduce their excess positions in stocks.
By and large, strategists agree with Trump’s policies Could still be a shepherd for the US stock market but don’t believe that these gains will come in a straight line.
“January’s volatility ahead of Trump’s 1/20 inauguration reinforces the mainstream view of a more volatile year ahead,” Julian Emanuel, who heads Evercore ISI’s equity, derivatives and quantitative strategy team, wrote in a note to clients Thursday evening.
Emanuel, who sees the S&P 500 ending 2025 at 6,800, or about 13% higher than current levels, still maintains that the Trump administration will bring continued volatility among investors “risk on” and “risk on.” between “out” moods.
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