Stocks had their best week of the year as investors cheered President-elect Donald Trump’s economic policies.
Steve Sosnick of Interactive Brokers said, “The economic boom is due to tax cuts, and there is a general perception that the market prefers Republican administrations, but it is true that the performance of Democratic administrations over the past few years has not been terrible.” “It wasn’t a real thing,” Steve Sosnick of Interactive Brokers explained to me. About Yahoo Finance’s special election coverage.
The Dow Jones Industrial Average (^DJI) soared more than 1,700 points from Wednesday to Friday, ending the week up 4.6%. The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) rose to record highs, and the Russell 2000 (^RUT) hit its highest since November 2021.
But markets need to be careful what they wish for. As it becomes clearer, experts said, a resurgence of inflation due to trade tariffs and additional government spending could pose a risk to market momentum and the Fed’s ability to curb rate cuts.
“The[market]surge is, to some extent, a reaction to expectations of solid growth, deregulation, and tax cuts…but the other part of it, of course, is that it could lead to higher inflation and fiscal expansion. It’s a deficit,” Sonal Desai, chief investment officer at Franklin Templeton Fixed Income, told Catalyst.
Stifel’s Barry Bannister sees downside risk to the S&P 500 index at $5,250 a year from now, and is closely monitoring any resurgence in inflation. The S&P ended the week above 6,000.
“If we see a resurgence in inflation…the final 12 months of Powell’s term (May 2025 to May 2026) could pose significant risks to investors,” Bannister said in a note to clients. I doubt this will increase further due to the approaching 2026 U.S. midterm elections.”
Keith Lerner, Trust’s co-chief investment officer, echoed this point on a new episode of the Opening Bid podcast (listen below).
Deutsche Bank expects that President Trump’s fiscal, trade and immigration policies could lead to upward revisions to inflation forecasts. The team led by Matthew Ruzzetti predicts that inflation could rise by about 0.5% in 2026 to about 2.5%, mainly due to the inflationary impact of tariffs.
Reports on Friday that President Trump has asked Robert Lighthizer to return to his administration as U.S. trade representative could signal a more aggressive approach to tariffs. During President Trump’s first term, Lighthizer played a key role in the escalating trade war with China, imposing tariffs on steel and aluminum imports and renegotiating U.S. trade agreements with Mexico and Canada. Supported.
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