"Trump 2.0" new round of trade wars may trigger global economic turbulence! But Wall Street firmly believes that the US stock market will continue to rise.

If Wall Street financial giants, including Goldman Sachs, J.P. Morgan, and Morgan Stanley, were to say one important thing they learned during Donald Trump's first term as President of the United States, it would be that even when the "global economy" falls into chaos and even "great turmoil" due to the global "trade war" triggered by the unprecedented tariff policies adopted by Trump, the U.S. stock market always stands strong. The stock market gains are seen as the most typical way to measure his achievements during his term. During his previous presidential term, Trump often credited the significant rise in the U.S. stock market to his economic policies, urging American people to buy on dips in the market, and even considering firing Federal Reserve Chairman Jerome Powell, believing Powell's interest rate hikes were the main cause of the market sell-offs. From the market pricing after the U.S. presidential election, global funds seem to be betting on the long-term strong rise of the U.S. stock market, with other global stock markets potentially lagging behind. Since Trump's victory on November 5th, U.S. stock market fortunes have shown a significant difference: the U.S. stock market skyrocketed, gaining $1.8 trillion in market value, while on the other hand, emerging market market value evaporated by about $500 billion and EAFE (Europe, Australia, and Far East) market value evaporated by $600 billion. Trump is set to return to the White House formally in January next year. Looking ahead to the coming "Trump 2.0 era," Wall Street financial giants are cheering that this will be the "golden age" of U.S. stocks, making the U.S. stock market once again the focus of global funds. However, the serious market debate remains on the fact that he will bring a series of relatively "negative" new economic policy proposals for the U.S. and the global economy, leading to risks of the U.S. economy slowing down due to "re-inflation," a new round of trade wars, and global economic turmoil, even risks of U.S. debt default due to the high deficits driven by tax cuts. For investors who have enjoyed the staggering 50% increase in the S&P 500 index since early 2023, the biggest hope for the market to continue its strong upward trend in 2025 and beyond may be that the Trump administration itself is afraid to do anything that would disrupt the rise of U.S. stocks. The S&P 500 index - Trump's "scoreboard" The so-called "Trump government scoreboard," for Wall Street and even some American voters, is the S&P 500 index, which Trump sees as his political achievement and is the biggest hope for bullish forces on Wall Street. Wall Street strategists generally believe that even though the Trump 2.0 era may bring high deficits, re-inflation, a new round of global trade wars, and even a global economic slump, the next U.S. president will at least not let his economic plans weaken the resilience of the U.S. economy and the stock market. "Trump sees stock performance as the most important component of his performance evaluation." Eric Stein, Chief Investment Officer of Apollo Wealth Management, said, "During his first term, he often used 'how is your 401K retirement fund doing?' as the opening line of his speeches, when the market was at historical highs. Therefore, he clearly does not want to implement any economic policies that may threaten the current bull market." After Trump announced his victory on November 5th, the S&P 500 index surged that day, recording its best post-presidential election performance in history. The S&P 500 index closed at 5,929.04 points on November 5th, up 2.5% on the day, marking the best-ever post-presidential election performance for benchmark indexes, with the U.S. dollar also rising significantly. According to data from the trading department of J.P. Morgan, the frenzy of U.S. stocks is expected to continue until the end of the year, and the momentum will be even stronger than at the end of 2016 (when Trump won the U.S. presidential election for the first time). The Chief Investment Strategy of Oppenheimer Asset Management raised its year-end target for the S&P 500 index to 6,200, and based on Oppenheimer's data, the monthly relative strength index (RSI) suggests that a market-wide pullback may not occur until 2025. After the announcement of the U.S. presidential election results, Goldman Sachs reiterated its forecast that the S&P 500 index would reach 6,300 within 12 months. This Wall Street financial giant's view on the U.S. stock market has not changed with Trump's election as the 47th President of the United States, with strong profit growth expected to support market gains until 2025. As of last Friday's market close, the S&P 500 index closed at 5,870.62 points. Another Wall Street investment firm, Evercore ISI, gave an even more optimistic prediction, stating that by mid-2025 (around June next year), the S&P 500 index will rise to 6,600 points, and said, "Trump decisively and uncontroversially elected as President of the United States, and the Republicans may win big in both houses of Congress, this is not anyone's baseline prediction." Evercore ISI also stated that the prospect of deregulation supports the U.S. stock market, "We see prosperity just around the corner; President-elect Trump will quickly take positive economic growth policy measures, and the stock market will also rise rapidly." These market reactions are noteworthy because Trump's campaign promises are not usually seen as favorable to investors. These promises include imposing high tariffs, which could.Worsening relationship tensions with major trading partners (such as China) and pushing up inflation; mass expulsion of low-wage undocumented workers; tax cuts for businesses and wealthy Americans, expected to increase national debt and widen budget deficits; and overall protectionist policies aimed at bringing manufacturing back to the United States, despite labor costs in the US being much higher than overseas.These risks are not a secret, they have already been widely discussed in the investment community. So where does the market enthusiasm come from? It's simple, Wall Street giants do not believe that Trump will tolerate a continued decline in the US stock market, even if the decline is caused by his own policy proposals. He will find other ways to maintain the bull market momentum in US stocks. Wall Street invents a new term: "Presidential Pivot Moment" "If some of these policies start to affect his popularity, or start to impact the US stock market in ways he deems unfavorable, I think he will change course in the market. This is what is being hotly debated on Wall Street as the 'Presidential Pivot Moment' - the time when Trump will introduce positive catalysts to push US stocks back into an upward trend," said Emily Leveille, a portfolio manager at Thornburg Investment Management, in an interview. Or, as Barclays strategists said in a report to clients last Thursday, "We believe the next US president should be taken seriously, but not limited to a literal interpretation." Investors are most closely watching the specific implementation of tariff policies, as Trump often used tariffs as a negotiating tool in his first term, threatening to impose tariffs, but quickly changing some ideas when the market sold off as a result. In this process, with the trade negotiations dragging on with China and Mexico, there has been a constant tug-of-war between him and the stock market, often openly discussing the next policy steps on social media. This time, Trump's return to the White House could trigger a new round of global trade wars, as he has proposed tariffs of 10% to 20% on imports from all countries. Strategists at UBS said that even with the lower tariff levels, it could lead to a 10% drop in the US stock market, and overall profits of S&P 500 component stocks could see a mid-single-digit decline by 2025. Barclays strategists noted that widespread tariffs plus tariffs of 60% or higher on Chinese goods could lead to a 3.2% decrease in earnings per share for S&P 500 component stocks by 2025. "Using tariff threats to gain an advantage in trade negotiations is one thing, but implementing tariffs is another," said Mark Malek, Chief Investment Officer at Siebert. He added that theoretically, Trump's sensitivity to the stock market should moderate his specific actions. Wall Street leaders like JPMorgan Chase CEO Jamie Dimon also seem to agree with this, as Dimon said at an APEC CEO Summit in Peru last Thursday that he believes the elected president would want to avoid any degree of stock market sell-off caused by tariffs. However, investors are avoiding risks of tariffs and trade wars, selling off stocks or stock market indices that are expected to be affected by tariffs. The Nasdaq Golden Dragon China Index, which includes companies listed in the US but doing business in China, has fallen by 8.9% since the US presidential election day, with stock indices in South Korea and Southeast Asia also falling sharply. Companies like Coca-Cola and PepsiCo, with major business exposure to markets like China and South Korea that could be targeted by Trump's new round of tariff policies, saw their stock prices drop by about 5.5%, and Hasbro's stock fell by over 7%. Limited reference value 2017-2021 For strategists, historical analogies may not be as important because the macroeconomic conditions when the "political novice" Trump first took office in early 2017 are very different from now. At that time, the S&P 500 rose by 9.5% in 2016, and had a slight decline in 2015. This time, the benchmark index has risen for two consecutive years, soaring by about 53% since the phase bottom in 2022. By 2024, the S&P 500 index hit more than 50 historical new highs. The benchmark interest rates in 2017 were also much lower, with the federal funds rate between 0.5% to 0.75%, while the current benchmark interest rate range is 4.5% to 4.75%. In addition, with Powell stating last Thursday that there is no rush to further cut rates after announcing rate cuts in September and October meetings, Trump may not receive too much easing help from the Fed. High stock valuations and tight financial conditions may limit Trump's ability to stimulate the economy and stock market as he did in his first term. In his first term, he passed a $1.3 trillion spending bill, increased domestic project spending, and implemented a $1.5 trillion tax cut policy. "Trump may not be able to replicate the scale of fiscal stimulus of his first term," wrote Marco Papik, Chief Geopolitical Strategist at BCA Research last week in a report to clients. "Trump 2.0 will limit immigration and be forced to restrict fiscal policy expansion, which are the two main pillars that have led the US economy and stock market to outperform the rest of the world." At least for now, these risks are mainly seen in the US bond market, as some traders are betting that US government bonds will face even more intense selling after Trump's victory, potentially driving the yield on 10-year US Treasury bonds, known as the "anchor of global asset pricing," to rise to 5%. Ed Yardeni, President and Chief Investment Strategist at Yardeni Research, said that the key question is how much the market can tolerate. "If the yield on the 10-year US Treasury bond continues to rise significantly due to concerns about inflation and larger budget deficits, then clearly the stock market pricing is wrong," he said. And the final risk, often contrary to market intuition, is whether Trump himself continues to be overly sensitive to the market's movements. According to Siebert, intervention measures such as posting on social media could disrupt the stable upward trend of the market, which is usually detrimental to stock prices. "It is well known that the market is unpredictable," he said. "Given the historical highs of the US stock market at present and the US macroeconomic conditions, if Trump, like in certain stages of his first term, reacts too impulsively to daily market trends, he and many other investors may find themselves being toyed with repeatedly."