S&P 500 set for higher, more volatile path to 6,600 by mid-2025

Investing.com -- The S&P 500 index is facing a higher, more volatile path to 6,600 by mid-2025, Evercore ISI strategists projected in a note Sunday.

“Post Election market action, higher stocks and more policy driven volatility, sets the tone for Trump v2.0,” strategists led by Julian Emanuel wrote.

The post-election rally has brought the index to hover around the 6,000 mark, fueled by seasonal momentum and positive market sentiment. Drawing parallels with 2018, the analysis foresees a year defined by deregulation, tax reforms, and tariff policies under "Trump 2.0," potentially echoing the volatility of his first term’s second year.

Evercore also highlights the absence of traditional market-top indicators such as an imminent recession, asset bubbles, or a hawkish Federal Reserve.

Regarding sectors, Evercore urges investors to remain overweight Tech, Communication Services and Small Caps, especially Software (ETR:SOWGn ), coupled with defensive plays in Consumer Staples and Health Care.

Strategists point out that events such as the small-cap surge in July, a "super low" correlation environment, and episodic volatility spikes resemble conditions that have historically led to robust market performance.

On the other hand, Evercore’s outlook considers potential risks, including geopolitical tensions and unexpected policy shifts. While a late-2018-style selloff remains possible, it would hinge on external shocks like inflation spikes or an “uncooperative Fed [and] agitated Bond Vigilantes” reacting to signs of a recession or a market bubble.

However, with the Federal Reserve expected to maintain a dovish stance through 2025, these risks appear manageable for now.

“Valuations alone do not end Bull Markets and signs of a top haven’t appeared,” strategists noted. “A Fed cutting, in check bond yields, and no Recession nor Bubble (precursors of a Top) support equities’ path higher.”

Source: Investing.com