The US stock market suffered a sharp sell-off Wednesday after the Federal Open Market Committee announced lower-than-expected rates for 2025.
Yardeni Research, a market research and insight firm, says that the worst is still to come.
In a recent report, Yardeni Research experts warned clients that the market would be more volatile in January because investors will opt to “take substantial profits early next calendar year rather than now in order to defer capital gains tax”
At the time of writing, the benchmark S&P 500 is up by close to 25% since the beginning of this year.
Initial days of Trump 2.0 will weigh on US stocks
Yardeni Research predicts an increase in volatility when Donald Trump assumes office in January.
On the first day of Trump 2.0, the market will be slammed with a “blizzard” of executive orders. These include a number of tariffs and deportation orders for illegal migrants.
A potential dockworkers’ strike could also weigh on US stocks next month.
“There could possibly be a strike by longshoremen in mid-January, because they are against automation at ports.” Trump publicly declared his agreement with dockworkers”, the firm added in their research note.
The S&P 500 index has fallen 3.0% from its record high.
S&P 500 could be heading for a 10% drop
Yardeni Research is concerned that a new government’s protectionist trade policies could increase production costs and lead to a rise in consumer prices.
The firm warned that these risks could lead to a 10% drop in US stocks.
However, it remains optimistic for 2025.
Yardeni Research predicts that the S&P 500 will reach 7,000 by the end next year, which is an 18% increase from the current levels.
Yardeni Research experts said: “We would see that as an opportunity to buy rather than a reason to panic and leave the market, since we do not expect a recession or bear market.”
What catalysts could drive the S&P 500 to a higher level in 2025?
The US Federal Reserve now expects to cut rates only twice in 2025, down from four times previously.
Yardeni Research, however, is not the only company that sees a roaring bull in the coming year.
Analysts at Deutsche Bank led by Binkychadha expect the benchmark index will also reach 7,000 next.
Chadha predicts that mergers and acquisitions could increase, which will help unlock more upside for US stocks.
He also expects that companies other than the big tech companies will increase their capital expenditures next year, which will serve as a tailwind.
The investment firm also expects that the S&P 500 index will reflect the economic recovery overseas in 2025.
As of this writing, both Yardeni Research & Deutsche Bank have set the highest year-end benchmark index targets for next year.
This post US stocks may see a steeper fall in January: Here’s Why appeared first on ICD
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