(Bloomberg) -- As tariff tensions and stubbornly high inflation whipsaw US stocks, bullish Wall Street forecasters are urging investors to stay the course.
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Money managers shouldn’t fret about a repeat of 2018, says Evercore ISI’s Julian Emanuel, referring to a tough stretch for the S&P 500 Index when President Donald Trump’s first trade war and Federal Reserve interest-rate hikes rattled the market. The equities benchmark sank 6% that year, its worst slump in a decade.
But Emanuel, the firm’s chief equity and quantitative strategist, sees key ways that the current backdrop differs from 2018, in favor of equity bulls. For one thing, although inflation data has been hotter-than-anticipated, expectations for price pressures remain anchored, so there’s no reason to expect the Fed to become hawkish. Then there’s the prospect of continued strength in stocks linked to the booming field of artificial intelligence, as pricey as those shares may be.
“The potential for a long-run rise in productivity from AI is a very powerful force in markets that partially offsets the elevated multiples one has to pay to own stocks,” Emanuel said.
Trump’s latest tariff pledge came Friday, with a promise to unveil new levies on automobiles around April 2. His announcements on that front have sparked worries about a possible inflationary impact should import prices rise, as well as the risk that the levies could undermine growth if trade counterparts retaliate.
But these worries have yet to sway strategists, who have stuck to their optimistic calls for 2025, making the case that strong earnings and economic growth will power US stocks higher. The average year-end target from Wall Street prognosticators is around 6,500, a record level that’s roughly 6% above Friday’s close.
The S&P 500 has been hovering near its Jan. 23 closing record for weeks. The index has been on a trajectory of “three steps forward, two steps back,” according to Emanuel. He anticipates the gauge will grind higher in a similar pattern toward 6,800 by year-end.
At Societe Generale SA, strategists led by Manish Kabra are calling for the S&P 500 to reach 6,750 at year-end. They say that accelerating corporate profits and projections for sturdy economic growth will keep equities advancing. They recommend owning the equal-weighted version of the S&P 500 that gives even consideration to all companies in the index.
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Worries Ahead
Tariff worries are bound to heat up in the days ahead as investors look to March 4, which would mark the end of the roughly one-month delay to the 25% levies that Trump threatened on Canada and Mexico.
During Trump’s first term, the S&P 500 fell by a cumulative total of 5% on days when the US announced tariffs in 2018 and 2019, according to data from Goldman Sachs Group Inc. The US benchmark dropped even more, a total of 7%, on days other countries announced retaliatory tariffs.
At Citigroup Inc., strategists led by Scott Chronert see a way that the tariff regime could be a positive for US equities, if investors conclude that it will benefit US companies.
“If fair trade is the goal, even though it’s unlikely to be messaged that way, greater market access could be a positive for the S&P 500,” the group wrote Friday in a note to clients. For the time being, though, stocks are likely to remain volatile until there’s more clarity around how it will all play out.
The tension around trade presents an opportunity to buy stocks that derive a significant portion of revenue from domestic sources, says BMO Capital Markets strategist Brian Belski. Those stocks have become too cheap relative to shares of firms that have more of an international focus, he said.
Among stocks he cites that fall into that camp: AbbVie Inc., EQT Corp. and Ventas Inc.
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