In the past year, U.S. stocks have been on a tear. This trend could be slowed down by the possibility of taxes that will raise prices under President-elect Donald Trump.
Based on data from FactSet, the S&P 500 index has gone up 31% in the past year as of Friday. The SPX index went up 0.43% on Friday, ending the day at 5,969.34, which is only 0.5% below its record close on November 11.
When asked about the firm’s view for 2025 on Thursday, Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said that the policies that the Trump administration might make could “really shake things up.” She said that imports are a real worry, but deregulation should give the market a “boost.”
Wall Street is keeping an eye on possible tax policies because they could hurt predictions for stocks next year. Depending on how much the Trump administration uses them in its trade policy, raising the prices of goods brought into the U.S. could either make inflation worse or slow down economic growth.
The top U.S. equity strategist at Goldman Sachs Group, David Kostin, thinks the S&P 500 could reach 6,500 by the end of next year. He told the media earlier this week that some of the biggest risks to his view for stocks in 2025 are geopolitics and higher-than-expected inflation from possible policy changes.
Kostin said that taxes, changes in immigration policy, or changes in fiscal policy could all cause inflation to rise. This could cause interest rates to jump to a level that hurts stocks.
This month, rates on Treasury bonds are going up. According to Dow Jones Market Data, the yield on the 10-year Treasury note TMUBMUSD10Y 4.291% ended Friday at 4.409% at 3 p.m. Eastern time. Kostin said that Goldman’s macroeconomic research gurus think the 10-year Treasury rate may end the year just above 4%.
Universal tariffs could “seriously hurt growth,” but there is still a lot of work to be done on that front, and Marcelli says Trump “might just change his course” if they cause Treasury yields to jump or the stock market to drop.
UBS thinks that goods from China and “certain imports like European Union cars” will be hit with taxes, she said.
Andrew Slimmon, a senior portfolio manager for U.S. stocks at Morgan Stanley Investment Management, told MarketWatch earlier this week that he thinks Trump will use tariffs as a “negotiating tool,” but that he probably won’t raise them to a level that would make inflation “skyrocket” in 2025.
On Thursday, Brian Rose, senior U.S. economist at UBS Global Wealth Management, talked about the bank’s outlook. He said, “If we really had universal tariffs” of 10% to 20% on every item brought into the U.S., “that would be highly inflationary” and have “a very negative impact on growth.” Also, immigration policies that could lead to mass deportations could cause prices to rise because there would be a lack of workers.
But Rose doesn’t think that possible deportations will be “dramatic.” She says that they shouldn’t have a “huge” effect on prices. He said that UBS thinks inflation will be close to the Federal Reserve’s 2% goal by the end of next year, citing the belief that inflation in housing will slow down.
Interest rates were lowered by the Federal Reserve for the first time since 2020 in September. This was because inflation has gone down a lot since its peak in 2022. The CME FedWatch Tool last checked on Friday afternoon and found that there was a nearly 53% chance that the Fed would cut its key interest rate again in December. This was shown by federal-funds futures.
Marcelli thinks that the “Fed will be able to look through the one-time” price hikes that Trump’s tariffs might cause. She said, “We are very hopeful about U.S. stocks.”
UBS Global Wealth Management thinks that by the end of 2025, the S&P 500 could hit 6,600. That’s more than 10% more than where the index ended the day on Friday.
In the last trading day, Friday, the U.S. stock market went up. The Dow Jones Industrial Average DJIA 0.92% jumped a sharp 1% to a new record high. The S&P 500 went up 0.3%, and the Nasdaq Composite COMP 0.53% went up 0.2%. After going down last week, all three indicators went up this week.
