MLIV Pulse Survey: US economic growth to boost US stocks and the dollar in 2025

According to the latest Bloomberg Markets Live Pulse survey, under the influence of Trump's policies, the US economic growth will make US stocks and the US dollar the biggest beneficiaries. The survey was conducted from December 18th to 31st, 2024. It was reported that out of 553 respondents, 61% said that by the end of 2025, the S&P 500 index will rise due to strong growth in the US economy and corporate profits. Some believe that the upcoming Trump administration may be a catalyst. At the same time, when asked whether Trump's policies would boost or drag down the US dollar, or have no significant impact, about half of the respondents said that Trump would have a net positive impact on the US dollar, citing his preference for tariff policies. However, it is worth noting that 27% of respondents believed that the same tariff policy was the reason for the softening of the US dollar. This divergence highlights the dual impact that Trump's policies will have on the US economy and markets. Although investors believe that his stance on tax cuts and deregulation is favorable for economic growth, some point out that his aggressive trade policies will fuel inflation and result in persistently high interest rates - a combination that often harms consumer demand and puts pressure on US asset performance. Timothy Graf, Head of Macro Strategy at Deutsche Bank Wealth Management EMEA, said, "These two viewpoints will clash at some point. I expect this to be a more volatile stock market environment, and when that happens, the correlation between them usually becomes more negative." For the S&P 500 index, 2024 was a stellar year - despite a sharp decline at the end of December. Driven by surges in stock prices of companies like NVIDIA Corporation (NVDA.US) and Apple Inc. (AAPL.US), the S&P 500 index hit a record high 57 times in 2024. Also in 2024, the Bloomberg US Dollar Spot Index recorded its biggest increase in almost a decade. Both US stocks and the US dollar were boosted by the performance of the US economy, which did not slow down as some had worried. Kit Juckes, Head of FX Strategy at Societe Generale, said, "The US economy continues to do very well. But I do wonder how much of this is driven by the rise in the stock market, which is unlikely to continue at this pace." "As long as the US economy continues to grow strongly, and as long as savings from other parts of the world continue to flow into the US market, the US dollar can stay high. But strengthening further will be a bigger demand." For the US economy, consumer resilience will be a key factor, and cracks are starting to show. High-income households are leading in spending, while low-income families are showing increasing signs of financial stress. If Trump's promised tariffs lead companies to pass on higher costs to consumers, low-income families will be more heavily impacted. Noel Dixon, Macro Strategist at State Street Corporation, also believes that US stocks and the US dollar are likely to continue their uptrend, but he also acknowledges the risks facing US consumers. He said, "The bottom 40% of consumers in the US are still under enormous pressure. Any inflation brought on by tariffs or continuous rises in commodity prices could significantly weaken demand in the second half of 2025." The survey shows that 57% of respondents expect that at the beginning of 2025, US bond yields may rise due to the threat of rising inflation. The yield on the benchmark 10-year US Treasury note jumped to a seven-month high last month, as the Fed indicated in its last rate decision that the number of rate cuts in 2025 would be reduced to two. This prompted traders to price in the possibility that the Fed will only cut rates once in 2025. Timothy Graf believes that the Fed is unlikely to halt rate cuts or even consider rate hikes, and the possibility of withdrawing monetary policy support is low, but this could still hit the already expensive stock market. He said, "The tipping point will be hiking rates, as the market believes that the Fed will either not cut rates further or may have to hike rates."