US stocks and the dollar are set to benefit the most as Donald Trump’s policies are expected to power economic growth.
According to the Bloomberg Markets Live Pulse survey report, strong economic and earnings growth in the US inspired optimism for stocks. About 61% of 553 respondents believed the S&P 500 would rise by the end of the year.
However, many pointed to the Trump administration’s policy outlook as a key factor. The survey was conducted after the Fed’s December 18 policy decision through the end of the year.
Opinions were split over how Trump’s policies have affected the dollar. Half of the respondents thought Trump’s stance on tariffs would have a positive effect on the currency, while only 27% predicted the policy would weaken it.
Trump’s policies are a double-edged sword of conflicting US economic expectations.
Lower taxes and lighter regulations are seen as moving economic growth forward, but Trump’s trade measures may instead stoke inflation and keep interest rates elevated. This blend may also chill consumer appetites and blur US markets.
Timothy Graf, head of EMEA macro strategy at State Street Global Markets, says, “I expect this to be a higher-volatility environment for stocks. ” The two views will clash at some point, and he expects that stock correlations could turn negative.
Gains were made in the S&P 500 despite challenges, with 57 record closes, thanks to the year’s boosters, Nvidia and Apple.
The unexpected economic resilience helped the Bloomberg Dollar Spot Index to jump as much as 1.8%, the most in a decade.
US growth is booming, but equity market gains might not be sustainable, according to Kit Juckes of Societe Generale. While the dollar is strong, he warned, it will stay that way only if the US economy continues on the current path and if global savings keep pouring into US markets.
Lower-income households are struggling, and higher-income groups are spending more money
US Consumers are key, but cracks are starting to show. This divide could get even worse, with tariffs adding to costs and increasing pressure on demand.
Noel Dixon, a State Street strategist, highlighted the risk to households. “The bottom 40% of consumers in the US are still under significant pressure,” said Dixon. He added that higher prices from tariffs or inflation could severely hit demand later in 2025.
Up to 57% of survey participants expressed concerns over inflation and believed Treasury yields would rise in early 2025. Following the Federal Reserve’s signal of fewer rate cuts, the 10-year Treasury rate hit a seven-month high as traders braced for tighter monetary policy.
Graf warned that any move by the Fed to pause rate cuts or even consider hikes would pose risks for high-valued stocks, even though it is unlikely to occur. A Fed shift to higher rates and stalling monetary support would challenge expensive stocks and be the tipping point, he said.
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