The stock market’s feverish rally following Donald Trump’s presidential election victory may have been the foretaste of a strong few months of gains.
“Exuberance lies ahead,” Julian Emanuel, who leads the equities, derivatives and quantitative strategy team at Evercore ISI, wrote in a note to clients on Wednesday evening. “President-elect Trump will take swift action on policy initiatives, and stock markets will react quickly in response.”
Emanuel, who already had a 6,000-point call on the S&P 500 for 2024, now sees the S&P 500 reaching 6,600 by the end of June 2025, an increase of about 11% from current levels. A “public re-engaged in speculation,” as evidenced by Wednesday’s market action that saw bitcoin (BTC-USD) reach 76,000 for the first time and Tesla (TSLA) shares rise 14%, could help, according to Emanuel pushing the benchmark index higher.
Market tops are often characterized by “exuberance,” Emanuel wrote. But with subdued activity in the IPO market and a lack of meme-like action in stocks where shares are rising without the fundamentals to back them up, the real signs of an overextended market rally aren’t blinking in the red.
Emanuel admits that when you consider that the S&P 500 is selling for more than 24 times the past twelve months’ earnings, stocks look expensive from a valuation perspective. But as strategists often point out, high valuations are generally not a great tool for market timing.
“Expensive has a history of becoming increasingly expensive and lasting longer with greater profits,” Emanuel wrote. ‘This market will be driven higher by the policy prospect of deregulation in DC, which has created a capital market cycle largely absent since the U.S. [October 2022] Through.”
Additionally, Emanuel cites the history of bull markets. The current bull market is 25 months old and has a return of 65%. This is far behind the average 50-month bull market, which produces a 152% return.
The case for higher stock prices is also supported by the Fed’s austerity cycle, Emanuel argues. Since the Fed cut rates by half a percentage point on September 18, 10-year Treasury yields have risen about 80 basis points to about 4.42%.
Normally this would be considered a headwind for stocks. Instead, the S&P 500 is up more than 5%. Emanuel points out that the only other time this happened during a Fed rate-cutting cycle was the “soft landing” of 1995, when the economy remained on solid footing and “the beginning of a glorious era in the stock market” began , said Emanuel.
In a client note on Tuesday evening, Stifel chief equity strategist Barry Bannister expressed a similar sentiment to Emanuel, writing that the “S&P 500 has entered a mania.” Bannister, who has been bearish on stocks during the rally, admits the index could rise further to the low 6,000s in coming months. This would happen just as the S&P 500 reaches an 80-year high valuation, Bannister wrote. But he also still sees a downside scenario where the index falls from that level to 5,250 a year later.
