[Cool]Dear tigers
Recently, investment banks have provided their outlooks for the year 2025, and it seems that the $.SPX(.SPX)$ 7000-point mark might not be just a dream!
In this article, Tiger Analysis team provided a forward-looking analysis on the expectations for US stocks $.SPX(.SPX)$ , the dollar $USD Index(USDindex.FOREX)$ , gold $Gold - main 2502(GCmain)$ , and the crypto $Bitcoin(BTC.USD.CC)$ market under the new policies anticipated from Trump's administration, for the purpose of discussion only.
1. The Impact of Trump's New Administration on Five Key Areas
For the 2025 outlook, the economic impact of Trump's new administration will be pivotal, especially in the following five areas: 1) immigration control, 2) deficit reduction, 3) imposition of tariffs, 4) deregulation, and 5) tax cuts.
The short-term impacts (especially by 2025) of these five policy directions on GDP, inflation, and the deficit are as follows:
Imposition of tariffs will increase inflation: The Tiger Analysis Team believes that tariffs may bring some inflationary pressure, but not significantly. They may lead to decreased consumption, reduced corporate profits, and other negative impacts on economic growth. However, the impact of tariffs on CPI growth is one-time, and the impact on the deficit is very limited, as tariff revenues only account for 2.1% of the total federal government revenue.
Immigration control will increase government spending and the deficit: Reducing new immigrants will directly slow population growth and slow demand-side growth. Labor supply will also slow, increasing wage pressure and, to some extent, inflationary pressure. Strengthening border control and deporting illegal immigrants will require the government to hire more personnel, leading to increased government spending and deficits.
Deficit reduction will hit GDP growth: Reducing government spending will hit GDP growth, reduce demand, and curb inflation. Although deficit reduction has a one-time impact on GDP in the short term, it is beneficial for long-term economic growth.
Deregulation is beneficial for economic growth: Companies can pass on part of the reduced regulatory costs to consumers and promote competition, which is also conducive to cooling inflation. Deregulation can theoretically reduce the deficit by promoting economic growth and reducing regulatory costs, but the short-term impact is very limited.
Tax cuts are beneficial for economic growth: Similar to deregulation, companies can pass on benefits to consumers and help cool inflation. However, reduced tax revenues will increase the deficit.
In terms of ease of implementation:
Tariffs can be directly implemented through the Trade Act of 1974 or the International Emergency Economic Powers Act without congressional approval, making them relatively easy to implement.
Deregulation can also be implemented through executive orders, making it relatively easy to carry out.
On tax cuts, it is more likely that the corporate tax rate will remain at the current 21%, and it is difficult to further reduce it to 15%. However, reducing tip taxes and income taxes for specific groups is relatively easy.
In terms of immigration control, border control is highly feasible, but the difficulty of deporting existing illegal immigrants is high.
The most difficult to implement is deficit reduction, as it is inherently contradictory to other goals.
Source: US Tiger Trade
In summary, Tiger team believe that the impact of deficit reduction on 2025 does not need to be considered much; even if it is reduced, the effort will not be significant and will be taken step by step.
If only the four easily implemented policies are considered, the economic picture for 2025 is: real GDP growth slightly slows to 2.0% - 2.5%, CPI growth remains largely unchanged or slightly increases, and the deficit ratio remains essentially unchanged. DOGE's significant impact is likely to be after 2025.
2. Interest Rate Environment Expectations for 2025
In 2025, the Federal Reserve's interest rate cuts will continue to drive down short-term interest rates. However, since economic growth will not significantly slow down, and there is a risk of CPI growth increasing, long-term bond yields may not show a clear direction but will remain between 4.0% - 4.5%, resulting in further normalization of the yield curve (as shown in the figure below).
Therefore, the cost-effectiveness of allocations in the first half of 2025 may be relatively low, and the second half may be considered as a means of hedging against recession as economic growth slows down.
Data source: Factset
The $USD Index(USDindex.FOREX)$ will continue to remain strong
Under the conditions of no recession, no slowdown in inflation, high deficits, and high interest rates, the dollar should continue to remain strong. The uncertainty comes from the interest rate hike path of the Japanese Yen (JPYmain).
The Tiger Analysis Team still tends to believe that even if Japan raises interest rates, it will control the pace to avoid a significant appreciation of the yen, thus having a limited impact on the dollar. At least, there is no need to worry about the reversal of carry trade for the dollar and dollar assets.
LongForecast.com's forecast for the $USD Index(USDindex.FOREX)$ in 2027 indicates a starting value of 103.09 points in March 2027, reaching 119.00 points by December of the same year, showing an overall upward trend for the dollar during this period.
3. US Stock Market will Maintain Moderate Growth
$.SPX(.SPX)$ $.IXIC(.IXIC)$ $.DJI(.DJI)$ US stock earnings will continue to grow moderately, but the risk of high valuations must be considered. As shown in the figure below, the CAPE (Shiller PE) level of the S&P 500 (.SPX) is now at 38.41x, consistent with the peak of the 2021 pandemic bull market, only lower than the peak of the 2000 internet bubble period (44.19x).
The Tiger Research Analysis Team believes that the higher the CAPE, the more limited the potential for stock market valuation expansion, and the lower the expected future returns. If there is an increase in 2025, it should be mainly driven by earnings growth.
Considering how long the market can continue to be irrational before a correction, the ability to select industries and individual stocks with high alpha in 2025 will be more important than in 2024.
According to Goldman Sachs research, the $.SPX(.SPX)$ is expected to continue its growth in 2025, with a target of 6,500 points, which is a 9% increase from the current level, including a total return of 10% including dividends. The earnings per share (EPS) for 2025 and 2026 are expected to be $268 and $288, respectively, aligning with market consensus forecasts. However, these forecasts are below the bottom-up consensus estimates based on individual company earnings estimates ($274 and $308, respectively).
Source: multpl.com/shiller-pe
4. Gold $Gold - main 2502(GCmain)$ May Be Overbought?
Gold should perform well when GDP growth slows and CPI does not cool, but it is necessary to consider whether the current price has already priced in this assumption.
Moreover, technically, the monthly line is still in an overbought range. As shown in the figure, the RSI is still above 75, and the momentum is in the exhaustion range, with a significant distance from the 200-month moving average. It may be worth waiting for a better entry point.
Data screenshot: TradingView
InvestingHaven.com predicts a gold price target of $3,150 for 2025, with an approach towards $3,800 by 2026, and a peak forecast of $5,150 by 2030. Additionally, consensus forecasts from various financial institutions for gold prices in 2025 are concentrated between $2,700 and $2,800, with Goldman Sachs and Bank of America forecasting $2,900 and $3,000, respectively.
5. $Bitcoin(BTC.USD.CC)$ Should Perform Well
Theoretically, due to high deficits, no recession, and high inflation, Bitcoin should perform well, but its own cyclicality must be considered. Further analysis will continue.
In summary, under the Trump administration in 2025, the US stock market is expected to continue growing, albeit with high valuation risks; gold prices are expected to reach over $3,000, indicating a bullish trend in the gold market; and the US Dollar Index forecasts suggest that the value of the dollar will remain on an upward trajectory through 2027. These forecasts provide a comprehensive view of the financial markets for 2025.
The above views are for discussion only.
Wishing you a happy Thanksgiving and a successful investment in 2025.
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