MW S&P 500 is on a 12-month tear as tariffs threaten 2025 outlook for U.S. stocks
By Christine Idzelis
'Tariffs are a real concern,' says the chief investment officer for the Americas at UBS Global Wealth Management
U.S. stocks have been on a tear over the past 12 months - momentum that is threatened in part by the potential for inflation-stoking tariffs under President-elect Donald Trump.
The S&P 500 index has surged 31% over the past 12 months as of Friday afternoon, according to FactSet data, at last check. The index SPX was up modestly Friday afternoon, at around 5,964.
The potential policies from the Trump administration could "really shake things up," said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, during a Thursday press briefing on the firm's 2025 outlook. While deregulation should provide a "boost" for the market, "tariffs are a real concern," she said.
Wall Street is watching potential tariff policies as a risk to forecasts for stocks next year. Increased prices on goods imported to the U.S. could lead to higher inflation or hurt economic growth, depending on the extent to which the Trump administration uses them under its trade policy.
David Kostin, chief U.S. equity strategist at Goldman Sachs Group, has forecast that the S&P 500 could rise to 6,500 by the end of next year. During a media briefing earlier this week, he said that geopolitics and higher-than-anticipated inflation from potential policy changes are among the biggest risks to his equities outlook for 2025.
Higher inflation may be fueled by tariffs, changes in immigration policy or shifts in fiscal policy, potentially spurring interest rates to jump to a level that hurts stocks, Kostin said.
Rates in the Treasury-bond market are up this month, with the yield on the 10-year Treasury note BX:TMUBMUSD10Y trading at around 4.41% on Friday afternoon, according to FactSet data, at last check. Macroeconomic research strategists at Goldman forecast the 10-year Treasury rate may end 2025 at 4.25%, said Kostin.
Universal tariffs have the potential to "seriously hurt growth," but a lot of negotiating is yet to be done on that front, and Trump "might just change his course" should they result in a big jump in Treasury yields or a drop in the stock market, according to Marcelli.
UBS expects to see targeted tariffs on goods from China as well as on "specific imports like European Union cars," she said.
Morgan Stanley Investment Management's Andrew Slimmon, a senior portfolio manager for U.S. equities, told MarketWatch earlier this week that he anticipates Trump would use tariffs as a "negotiating tool" but probably wouldn't raise them to a level that would cause inflation to "skyrocket" in 2025.
Check out: Stock market 'finally paying more attention to tariffs' as a potential headwind
"If we really had universal tariffs" of 10% to 20% on every item imported into the U.S., "that would be highly inflationary" and have "a very negative impact on growth," Brian Rose, senior U.S. economist at UBS Global Wealth Management, said during the media briefing Thursday on UBS's outlook. Also, immigration policies potentially involving mass deportations also risk being inflationary, as ensuing labor shortages could pressure wages.
But Rose isn't expecting potential deportations to be "dramatic," saying they shouldn't have a "huge" impact on inflation. UBS anticipates inflation will be close to the Federal Reserve's 2% target by the end of next year, he said, pointing to expectations for shelter inflation to slow.
The Federal Reserve began cutting interest rates in September for the first time since 2020, as inflation has eased substantially from its 2022 peak. Federal-funds futures on Friday afternoon showed a nearly 53% chance that the Fed may cut its benchmark rate again in December, according to the CME FedWatch Tool, at last check.
Marcelli anticipates the "Fed will be able to look through the one-time" price increases that might come from tariffs under Trump. "We are really optimistic about U.S. equities," she said.
UBS Global Wealth Management expects the S&P 500 could reach 6,600 by the end of 2025. That's more than 10% higher than the index's trading level on Friday afternoon, according to FactSet data, at last check.
The U.S. stock market was rising Friday afternoon, with the S&P 500 up 0.3%, the Dow Jones Industrial Average DJIA advancing 0.8% and the Nasdaq Composite COMP edging 0.1% higher. All three indexes were on track for weekly gains after falling last week, FactSet data show, at last check.
-Christine Idzelis
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(END) Dow Jones Newswires
November 22, 2024 15:12 ET (20:12 GMT)
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