Economic uncertainty and frothy valuations jar with investor optimism
The US stock market is on a roll. The S&P 500 index closed 2024 up 23 per cent, marking its second consecutive annual gain above 20 per cent. This year, the average forecast on Wall Street is for around a further 10 per cent rise. Households are bullish too: the share of Americans expecting equity prices to rise is at its highest in decades. The exuberance is jarring for two reasons.
If, however, the president-elect’s zeal for import levies turns out to be more rhetoric than reality, then the economic backdrop could support financial markets. The US Federal Reserve may be able to cut interest rates further and faster . But how can investors have any conviction about what Trump will actually do? On Monday, markets see-sawed after the president-elect rebutted an earlier news report that claimed he would water down his tariff plans.
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