Trump Set to Become Wall Street's New Fixation, Overtaking the Fed
The stock market remains buoyant despite investors adjusting their expectations regarding potential further declines in interest rates.
TroibNews 
In recent years, investors have closely monitored Federal Reserve Chair Jerome Powell as he tightened economic conditions to combat inflation before beginning to ease restrictions. However, next year, the market may shift its attention toward Donald Trump.
Despite a drop in expectations regarding the future of interest rates, the stock market remains buoyant, with the S&P 500 experiencing a remarkable rise of 27 percent this year. Fed officials are widely expected to announce a reduction in rates on Wednesday afternoon. As of Tuesday, most investors anticipated only one or two additional cuts in 2025, indicating a lack of reliance on significantly lower borrowing costs. Instead, their optimism centers on the economic and corporate profit forecast under Trump’s leadership.
At the same time, there is significant uncertainty surrounding the new administration's policies, which are likely to have major effects on both growth and inflation.
“The nightmare scenario for Trump and the Fed is that the Fed begins to matter again next year as an inflation fighter,” said John Fagan, co-founder of Markets Policy Partners and a former markets head at the Treasury Department.
Wall Street is undeniably experiencing a surge following Trump’s recent victory. A record percentage of consumers expect stock prices to increase over the next year, according to the latest survey from the Conference Board, and current valuations are exceptionally high compared to historical standards, with projected price-to-earnings ratios reaching levels not seen twice since 1985.
Speculative investments are flourishing as well, with the global cryptocurrency market increasing more than 20 percent in just the past month, bringing its total value to $3.77 trillion.
However, this period of growth may come to a halt if the Fed decides to tighten its stance again, as noted by Richard Bernstein, chief executive officer of Richard Bernstein Advisors. Bernstein believes there is a gradual recognition occurring that the economy is considerably robust.
“Let’s say we’re right and the nominal economy is much stronger than people think — that instead of 2 percent growth and 2 percent inflation, we have 3 percent growth and 3 percent inflation, or 3 percent growth and 4 percent inflation,” Bernstein posited earlier this month. “Long-term interest rates will be higher, and the Fed will get an itchy trigger finger to raise rates.”
Michael Feroli, chief U.S. economist at JPMorgan Chase, remarked that the market is “priced to perfection,” suggesting that even minor setbacks could lead to a negative reaction from stocks. Various economic risks linger, such as the possibility that increasing government debt might elevate borrowing costs, along with geopolitical concerns that could disrupt global oil supplies.
Nonetheless, even with high stock valuations, there remains potential for further increases if the economy continues on its current trajectory.
“It doesn’t have to mean it’s a bubble that’s going to pop because there is a case to be made that earnings will continue to be strong,” he stated. “You can paint a scenario that would justify these types of valuations. We have had pretty optimistic expectations for the economy realized … so it’s not like something you can just dismiss out of hand.”
Rohan Mehta contributed to this report for TROIB News
Despite a drop in expectations regarding the future of interest rates, the stock market remains buoyant, with the S&P 500 experiencing a remarkable rise of 27 percent this year. Fed officials are widely expected to announce a reduction in rates on Wednesday afternoon. As of Tuesday, most investors anticipated only one or two additional cuts in 2025, indicating a lack of reliance on significantly lower borrowing costs. Instead, their optimism centers on the economic and corporate profit forecast under Trump’s leadership.
At the same time, there is significant uncertainty surrounding the new administration's policies, which are likely to have major effects on both growth and inflation.
“The nightmare scenario for Trump and the Fed is that the Fed begins to matter again next year as an inflation fighter,” said John Fagan, co-founder of Markets Policy Partners and a former markets head at the Treasury Department.
Wall Street is undeniably experiencing a surge following Trump’s recent victory. A record percentage of consumers expect stock prices to increase over the next year, according to the latest survey from the Conference Board, and current valuations are exceptionally high compared to historical standards, with projected price-to-earnings ratios reaching levels not seen twice since 1985.
Speculative investments are flourishing as well, with the global cryptocurrency market increasing more than 20 percent in just the past month, bringing its total value to $3.77 trillion.
However, this period of growth may come to a halt if the Fed decides to tighten its stance again, as noted by Richard Bernstein, chief executive officer of Richard Bernstein Advisors. Bernstein believes there is a gradual recognition occurring that the economy is considerably robust.
“Let’s say we’re right and the nominal economy is much stronger than people think — that instead of 2 percent growth and 2 percent inflation, we have 3 percent growth and 3 percent inflation, or 3 percent growth and 4 percent inflation,” Bernstein posited earlier this month. “Long-term interest rates will be higher, and the Fed will get an itchy trigger finger to raise rates.”
Michael Feroli, chief U.S. economist at JPMorgan Chase, remarked that the market is “priced to perfection,” suggesting that even minor setbacks could lead to a negative reaction from stocks. Various economic risks linger, such as the possibility that increasing government debt might elevate borrowing costs, along with geopolitical concerns that could disrupt global oil supplies.
Nonetheless, even with high stock valuations, there remains potential for further increases if the economy continues on its current trajectory.
“It doesn’t have to mean it’s a bubble that’s going to pop because there is a case to be made that earnings will continue to be strong,” he stated. “You can paint a scenario that would justify these types of valuations. We have had pretty optimistic expectations for the economy realized … so it’s not like something you can just dismiss out of hand.”
Rohan Mehta contributed to this report for TROIB News
