Equity market pullback could have -5% to -9% downside, Evercore says

Investing.com -- The U.S. equity market faces a potential pullback of 5% to 9% in the near term, according to Evercore ISI analysts on Monday, citing a combination of macroeconomic and policy factors.

In a research note, Evercore ISI highlighted how post-election certainty, driven by President-elect Donald Trump's decisive victory, initially buoyed equities.

However, they explain that the stability has now fostered investor complacency, with looming risks such as tariffs, immigration policies, higher yields, and a hesitant Federal Reserve weighing on market sentiment.

"The urgency by President-elect to Move Fast, Break Things is creating turbulence," the analysts noted, referring to Trump's rapid push to implement policies.

Evercore emphasized that the "perceived drags from tariffs and immigration" could exacerbate the ongoing market wobble.

Adding to the uncertainty is the Federal Reserve's cautious stance on interest rate cuts, according to Evercore.

They explain that a move in the 10-year Treasury yield toward 4.75%-5% could further pressure valuations, which are already stretched, and deepen the pullback.

The report also pointed to tech giant NVIDIA (NASDAQ:NVDA ) as a critical near-term focus. Evercore believes a positive reaction to NVIDIA's updates could cushion the downside and refocus attention on AI investments' long-term growth potential, which is seen as a cornerstone for a continued rally in the S&P 500 to 6,600 by mid-2025.

Amid the volatility, Evercore recommends maintaining a barbell strategy, pairing growth sectors like information technology and communication services with defensive plays in health care and consumer staples.

Additionally, "SPY strangles" could be attractive, given the VIX 's multi-month lows and expectations of rising volatility through 2025, says the firm.

While Evercore sees near-term headwinds, they stress that AI-driven productivity gains and broader economic themes catalyzed by Trump's policies could support long-term market resilience.

Source: Investing.com