-
Trump’s second term won’t be the rocket fuel for stocks some expect, Capital Economics said Friday.
-
However, enthusiasm for AI will push the S&P 500 to 7,000 by the end of 2025, the company said.
-
Trump’s tax, deregulation and tariff proposals could disappoint the market.
Donald Trump’s policies could disappoint the stock market, but that won’t stop another major catalyst from helping the S&P 500 soar to new highs, according to Capital Economics.
While investors seem convinced that Trump offers the best outcome for stocks, the research firm has pushed back on this idea. Bullish momentum should still drive indexes sky high next year, but that will only reflect continued enthusiasm for artificial intelligence rather than a push from new policy.
According to the company’s estimates, the S&P will rise to about 7,000 points by the end of next year, which represents an increase of about 15% from current levels.
“However, this has nothing to do with the policies we expect to be implemented,” Capital Economics said. “In fact, we think it will be negative for stocks, as Trump’s second term proves to be neither ‘pro-growth’ nor ‘pro-business’.”
Although the market reaction after the election was euphoric, Capital Economics suggested that investors should take a closer look at Trump’s plans, the likelihood that they would become reality and the potential impact on the economy.
On the one hand, Trump may not be able to deliver on promised tax cuts, even with a Republican Congress.
“The bottom line is that without a filibuster-proof majority in the Senate, Trump would be forced to rely on the complicated budget reconciliation process. A likely single-digit majority in the House of Representatives will complicate the process,” Capital Economics wrote in a separate article. note on Friday.
In addition, Republican lawmakers may fear negative bond market reactions if tax cuts are pursued as traders grow increasingly concerned about rising U.S. debt. Ten-year Treasury yields rose sharply after Trump’s victory as the market priced in higher interest rates, higher government spending and higher inflation under Trump.
There is also room to doubt Trump’s push for deregulation, a promise that has helped push financial stocks higher. Capital Economics said Trump had made the same claims of massive deregulation in 2016, with little long-term impact on the market.
Finally, the research firm said it views Trump’s tariff and immigration policies as a net negative for the economy. While it remains to be seen whether the president-elect will stick to his promise of a universal tariff of 10 to 20 percent on all imports to the US, this is enough to hit the company’s profits and prospects, the note said .
