Stock Market Forecast
As President Turmp’s great American reindustrialization and tariff roller coaster continues, investors should increasingly focus on the longer-term forecast, past the 6-month outlook, to the 5 year forecast period.
Is there much more to learn about the US manufacturing repatriation process? Can you earn enough on the volatility trade? Day traders are loving it. Are corporate earnings going to explode upward this year? Likely not, so hunkering down and gaining some clarity on the real drivers of the economy and which sectors will benefit from Trump’s new economy is wise.
What Last Week’s Performance Tells Investors
Last week’s flat performance on the majors tells everyone the tariff volatilty is still in play. It won’t go away this year, since this is a major geo-political event. Adjusting supply chains and consumer spending will take years to roll out.
This week, Trump softened his tariff stance with claims of tariff deal offers and extending an olive branch to China. Those investors still in the market liked the news. Trump also stated he wants interest rates down and said he wasn’t going to fire J Powell. The NASDAQ is up almost 3 % today. The MAG7 stocks are all up too. If the trend continues, it’s going to brighten stock prices in the next week or so. Does it change the 3 to 5 year outlook? Is Trump’s reindustrializaiton repatriation plan still in play?
There are reports of massive cash flows out of the US to tax haven countries and Europe. That’s helped push the US dollar index down below 100. However, such decreases in the USD means US exports become cheaper and foreign imports more expensive. Large investors are not believing too highly in the current stock market. Forward earnings as you can see in this chart from YCharts.
The fight to keep the megacaps dominant and front and center remains, and the Dem’s fight against the recovery of the US isn’t over. They and their media outlets will continue to attack Trump and his team (TESLA back up today, after poor revenue report). Whether Trump’s change is too fast or too slow depends on your viewpoint. But 2025 will be a turbulent year as Trump tries to get control of all needed to make this reindustrialization of America happen. Volatility now might only describe Trump’s grab at power. His next big fight is with the Senate on deregulation and with J Powell, who wants to keep interest rates high.
Experts such as Powell are promising inflation (CPI for all items slid 0.1% in March), but if you look at the numbers, they don’t look really strong. Inflation however, isn’t an issue of supply — it’s more an issue of willful intent to profiteer. Companies are hiding their price increases under the cloak of tariff-induced inflation (as always) seizing on an opportunity to raise profits. Of course, this deliberate inflation adds to real tariff cost issues, thus slowing the economic recovery.
Oil prices and gasoline prices had been falling nicely below $60 a barrel until Israel’s most recent attack on Gaza and the US strike in Yemen. Now oil is above $67 this weekend. If it isn’t one thing, it’s another. The news drives the markets. Trump would be wise to turn to Canada to substantially increase its import of Canadian crude as the best way to tame inflation.
After the Transition: 2026 and Beyond
Investors should harken back twenty years to when China was going through this same transition and infusion of trillions in foreign cash investment where it enjoyed unbelievable GDP growth rates. J Powell and the FED should take note that despite that fast growth, China didn’t suffer inflation, because it didn’t have regulations stunting supply. China was free to do whatever it liked in trade (enjoying massive support/favoritism from the WTO). It is the US’s turn beginning now. This means US stocks are still the right choice.
The 25% and reciprocal tariffs will force US and foreign companies to move their operations to the US, or face being shut out of the lucrative, massive US marketplace. It’s not an outcome many relish. They’ll likely accelerate the process they’ve been resisting so hard. President Trump’s lenience is showing however, as he tries to soften the recessionary trend and its voices.
Over the past year, investors overall haven’t gained much. It’s all about choosing the best stocks and the best sectors. They say don’t buy the dip, however we may have seen the bottom, but rises going forward might be weak. The world’s economy has been shortcircuited for a while. Consumer spending is falling but still the US as a whole will come out of this better than any country. All other countries have so much to lose which is why they’re meeting with Trump.
The Trump changes reflect the recent volatility, however that will likely ease through 2025. Once deregulation is implemented (the Dems will fight it), the full potential of the United States will be in full play. Choosing stocks for the road ahead is wiser than trying to pick ponies in this race. Returns from the S&P might only be from a handful of stocks while the rest linger in mediocrity.
Wall Street Had a Bad Week
Today, the roller coaster ride on the stock exchanges will likely continue this week ahead. That’s mostly due to the extreme relationship with China, and with Trump having conversations with European leaders, and discussing tariff reduction. No one really knows if anything will evolve from chats with Italian President Meloni, or if it’s all phoney baloney.
It’s extremely unlikely that Europe will suddenly be okay with US imports. And Europe is talking about it’s future being fine without Americans. China just announced measures to prevent less energy-efficient microchips from entering China — namely Nividia’s chipsets. Nvidia’s stock price promptly fell again today and is down further to $112.21 in after-hours trading. President Xi feels injuring Nvidia is a good counter-punch to Trump.
There are plenty of stock market forecasters calling for a continued market rally and some cite historic evidence of rises after major corrections. No one is predicting a crash and investors aren’t inquiring about that topic. Yet the trade tariffs can’t be discounted. An international trade war is a major event, and for some reason, these experts don’t believe it’s going to happen. They believe President Trump will call it all off.
In reality, with US exports (still rising) declining due to coming counter-tariffs, Trump has to accelerate repatriation and hope that US production can meet demand. It’s not likely going to be able to, which puts the markets in jeopardy. This may be why some pundits believe he will push tariffs off till later in 2025. Regardless, tariffs are certain.
A Flood of Foreign Direct Investment into the USA will Accelerate
However, after the $21 Billion Hyundai investment announcement, after TSMC announced a $100 billion investment, it just doesn’t appear he can call it off. The optics on that would be awful. Business and investment news media channels are boldly claiming he’s offering exemptions to a set of privileged corporations, and we’ll find out about that next week too.
Canada, China, Europe, UK and Mexico are set to launch counter-tariffs which forces all businesses to begin making adjustments. All their politicians are firmly in staunch opposition with plans to retaliate fully. Trump’s intent to support US companies seems to be sincere and he is not known for conciliatory sentiment. He has repeatedly stated his belief that the US doesn’t need anything from Canada.
Trump said he can’t rule out a recession or that inflation won’t rise. There’s going to be a stock market correction and I suspect early April will bring a drop of 10% across the indexes. Gold rose $5 to a record $3028 an ounce so it seems a good number of investment managers are pessimistic.
With respect to the NASDAQ, the China blockade of Nvidia chips and a coming blockade of Tesla’s vehicles will hurt the Magnificent 7. Apple too will be affected, however as stated, pundits believe Apple will be spared. Confidence is fragile. The NASDAQ lost 9% in the first two weeks of March, so a 15% drop is not outlandish.
Trump could quash the back to Biden sentiment, by reminding Americans of the US debt to $36.6 Trillion with interest-on-national debt payments in excess of $1 Trillion. The markets are down strongly today waiting for who flinches in the standoff. What’s working against the Democrats is the public’s rising awareness of the high tariffs that other countries impose on the US.
In fact, after the volatility, friction and slowed performance during this adjustment period, US companies will grow in number and size as more repatriation takes place. However, with that growth comes a rising issue of producer and consumer prices. It’s something that may cause President Trump to ease the high tariff rates. If this is in fact, a ploy to renegotiate the USMCA trade agreement, the economic outcome should still favor US corporate earnings.
See more on the effect of US tariffs on stocks
Uncertainty can be a significant business and investment problem since nations aren’t sure how to respond. It’s said that your true intelligence shines when you don’t know what to do. Long run, the trade war will be good for both Canada and Mexico as they work to build new international trade partners. Short term, it will slow GDP in the US, Canada and Mexico. The US dollar has receded although experts believe it will pick up strength shortly.
The fact is, the US is and will be the place to invest. US fund managers, banks, and corporations will look to bring their trillion dollar holdings back to the US, however, by leaving it so late, they won’t get much for their foreign currencies. They exercised poor judgment in resisting the Republican pro-American agenda.
Pro-US is a Major Force
In the next 5 years however, the tariffs and pro-US agenda should push US equities to new record heights. Significant reshoring of manufacturing to the US is happening. Both Apple and TSMC announced massive investments in plants in the USA. As this forecast of the PMI shows, the US might be in for significant growth due to forced reshoring.
This chart shows strong growth in manufacturing, an area the US has been very weak in for decades during the China era. After a lull to July, growth is expected to pick up.
With respect to the highlighted auto manufacturing sector, higher price tags are expected. Ford CEO Jim Farley said “Long term, a 25% tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen.” Given how manufacturing is distributed across borders, we could see vehicle production and shipments stop entirely. It’s a looming crisis which Donald Trump will have to respond to (given public pressures).
US GDP Forecast
Forecasts for US GDP and GDP per person look good.
For this year however, the tariffs will suppress GDP (estimates are -1%) and force consumer prices upwards. The haphazard application of the tariffs leaves no time for adjustment. As the bad news accumulates regarding supply chain disruptions, layoffs mount, consumer spending will drop further. Last month consumer sentiments dropped significantly (6.4 on the index) however, it remains positive in the US. That may drop significantly in March.
The trade war will take its toll. Here, Trading Economics believes US exports will recede strongly through 2025.
What investors need to consider:
- tariffs may raise consumer prices and sour consumer sentiment and spending
- continued volatility reflects uncertainty and struggles with stock’s ultrahigh valuations
- price bubbles in the past always led to a crash
- counter-tariffs and other actions will affect the US supply chains
- Canada could stop 4.3 million barrels of oil per day delivered to the US
- President Trump’s roughshod approach is building tremendous emotional negativity and trend to retaliation
- American news and business media don’t regard the counter-threat seriously
- these bubbled valuations will be questioned as earnings begin to decline strongly after July
- economy, jobs and sentiment may decline in the next 3 months
Goldman Sachs New Data Released
Recent data from Goldman Sachs is sending shockwaves through the investment world, which shows a big increase in ‘short’ positions against US stocks – signaling those institutional investors believe the US stock market is headed for a precipitous crash. In a Fortune Magazine article, Nassim Taleb who wrote the book The Black Swan (about unpredictable events), believes a Black Swan might be near, and the coming stock market correction will be 3x the DeepSeek drop.
Investors will struggle to identify the best stocks to buy, especially the best tech stocks to buy. If you’re smart and waiting for the bottom, you’ll be rewarded soon with the best buy the dip opportunity possible.
The Trade Deficit With China
Amidst all of the anger and government funding crises, the Democrats are fighting Trump’s cost cutting measures and not supporting his China tariffs. Just by not trading with China, the US could save hundreds of billions of dollars.
Fear and Greed Index
CNN’s fear and greed index has pointed to extreme greed for some time now.
Lagging effects of high interest rates are really biting in right now harder than ever given employment growth is stagnating and investors have lost confidence. US GDP is okay, but US manufacturing PMI is sinking. That will change by December, in, fact last months PMI was up. However, of the 14% of S&P 500 companies that have released their 3rd-quarter results, 79% have beaten expectations mildly. So performance has been there and now with lower taxes, deregulation, and lower energy prices, the sky is the limit.
Experts Views
Positive Signals
Ed Yardeni, in a Fox Business interview, expressed confidence that the US economy is on track and should recover next year. He says inflation is under control and won’t return. We might have some doubts given supply shortage issues haven’t been resolved. A Trump win on the Nov 8, business will be delighted, thus fueling growth and CPI index gains. July’s Consumer Price Index inflation data will be released on August 14, 2024.
Goldman Sachs says China’s oversupply is easing and with tariffs and sanctions, what China does send into the US will be more expensive. Citi Bank believes oil will drop to near $60 a barrel next year, which would give the US economy and US consumer a big financial boost. That will aid lower inflation.
Goldman refers to AI advancements and positive mega-cap earnings, as though nothing else exists in the economy. This has made investing dangerously narrow and at some point a broadening has to happen. That will make the Russell 2000 stocks the best place to be. Investors seem to be sensing that of late.
This minor confidence in the Russell 2000, is just a hint at what will happen with a full-blown market transition to small-cap stocks. Studying the Russell stocks is what most investors should be doing as they sit on their current portfolio. Many are moving money from the NASDAQ over to small caps. However, that move might be too early. This fall may not be pretty if the FED doesn’t cut rates enough. A 25 or 50 basis cut may be disappointing.
Will a Broadening Out of the Market Occur this Year or Next?
Can a marketing broadening to small caps possibly occur if rates don’t go down? Here’s what Marketwatch is saying about a broadening. Money has been leaving tech stocks of late, and at some point, we’ll see an exodus from safe haven mega caps. For now though, investors are keeping their money in them.
Consumer Spending Will Improve
Consumer spending has risen, boosted by government spending and stimulus money sitting in bank accounts and money markets. And now we wait the movement of that $6 Trillion into the equities markets away from bonds and treasuries. Trump will switch to tax generation from a booming economy to fund a down-sized government, optimized by Elon Musk.
Summer 2025 is Coming. What Will Happen?
Summer brings families to spend on travel, food, home entertainment, and more giving the economy a lift. it’s raised food and gasoline prices. US consumers will be spending more at home and traveling domestically which keeps more money in the US economy. That will generate more jobs and raise incomes, and this is just the start of what will be a strong 5 year economic and stock market forecast.
Hot Stocks!
In a rather flat stock market outlook for the next 3 months, investors are risking it on hot stocks. It’s gambling, and there is nothing settled in any area of the economy. Economists all speak of volatility ahead.
Stock Market Predictions for 2024
What is a stock market prediction worth today? Let’s look back at Wall Street’s forecast for the S&P in 2024 (we’re at 5600 now).
And here are the forecasts from late 2023. What is your impression of the major banks’ predictive capabilities?
Goldman Sachs Research forecasted the S&P 500 index would end 2024 at 4700, for a 12-month price gain of 5% and a total return of 6% including dividends. We’re far beyond that, which means these companies have a far too fearful outlook that investors are beginning to disrespect.
As you can see, most investment companies are bullish about 2024 with a range of about 8% to 10% for the optimistic, most noted authorities. Of course, we’re well up already two months into the new year and it looks like these will be revised upward as increasing good economic news is reported.
The US economy is in excellent condition. Unemployment is 3.7%, inflation is only 2.8%, income is up 3.4%, consumer spending continues moderately, and US national income is up and forecast to rise continuously to 2029.
Let’s Review why the Stock Market Forecast is so Rosy
- inflation continues to lower
- FED rate cut expected in June/July and a full 1% lower by 2025
- US GDP slowing thus inflation may be past
- US dollar weakens strengthening exports
- $6 to 8 Trillion in money markets could move to equities as interest rates fall
- materials prices on a downward trend (natural gas, oil, lumber)
- innovation and investment in AI contributing to a rebuilding of the economy and a renewing of many products in use (laptops, smartphones, autos)
- investor doubt and insecurity have eased of late given the rally is so persistent, weathering all bad news
- normally sluggish 1st quarter downturn will end in a few months
- China dependence is decreasing with the re-onshoring of manufacturing to the US
- trillions in US infrastructure spending due to start this year
- wages are rising fueling consumer spending
- job growth will be strong due to lower taxes and deregulation in industries
- earnings are slated to increase by an unthreatening 1.3% YoY with topline sales expected to grow by 3.1%
- Presidential election 8 months away with the tax-cutting, deregulating Donald Trump in the lead
- the defeat of the Democrats translates to pro-business policies which gives investors tremendous relief
- Goldman Sachs sees the S&P hitting 7000 by end of 2025
- Chips Act and infrastructure spending should bolster economic growth
After a strong 3 months, the Dow Jones, S&P, Russell 2000 and NASDAQ are gaining speed.
At this point, you’re wondering which sectors are going to boom this spring, and which individual stocks will rocket. Certainly, the Russell 2000 has some hot stocks rocketing right now. The overall trend for the Russell is heading upward yet there are still concerns about the economy.
Hottest Sectors this Week
Perhaps not surprisingly, technology, consumer staples, and communications lead the way. Materials and energy leveled upward but are not expected to do well for the next few months. The Dow was lagging because of poor economic news.
Have a look at the 3-month and 6-month projections for the stock market and collectively you’ll see the bull market horizon is not far off. And view the 5-year forecast for better clarity for the road ahead. Getting a grip on the macro picture is important, and don’t forget that politics is the dictator of markets and they can still throw a monkey wrench into this (high rates, regulations, anti-stimulus spending bills).
Will Fear of Missing Out Also Boost the Stock Markets?
FOMO investors are afraid of losing out and if they start moving all that money from the money markets ($4 to $6 Trillion estimated) then stock prices could rocket. It’s definitely time to own something. You may find the best stocks to buy today, or next week are a basket of large caps, but for those who demand more, the Russell 2000 small caps are likely where you’ll get rich.
“This environment where rates are cooling, inflation is moderating and the Fed is on the sidelines, that is typically a good backdrop for risk assets. Typically when rates start to move lower, you get valuation expansion and the areas that we could see some more meaningful valuation expansion is outside of large-cap tech.” — Mona Mahajan, senior investment strategist at Edward Jones
Interesting stock picks:
Arm Holdings (ARM), United Rentals (URI), Toll Brothers (TOL), D.R. Horton (DHI), TopBuild (BLD), InterContinental Hotels (IHG), Marriott Worldwide (MAR) and Palantir Technologies (PLTR).
AI technology, homebuilders and travel companies are the best stocks to buy. I like DR Horton and Toll Brothers outlook for the next few years. The demand for housing is intense with resale properties unable to be sold with severe shortages (costs, interest rates, materials shortages, lack of government support). As mortgage rates fall, hungry, impatient buyers will jump on new homes available on the market.
When Will all that Money Market Money move over to Equities?
Markets have suffered low volume and disinterest for sometime, yet $5 to 6 Trillion in money markets is one reason to hang in there with your best picks. Not all of that money will move, but a good chunk of it will by end of 2024. If Biden wins, then money will retreat to the money markets.
Year to date, NASDAQ and the S&P 500 have persevered well. As interest rates ease, the NASDAQ was positioned best for growth, which means US tech stocks might be the best bargains. Here are your top-performing tech stocks of late on the NASDAQ exchange. With the coming growth of AI, Nvidia has caught the eye of investors.
Morgan Stanley pointed out in their Stock Market Outlook 2023 report, the stock market does very well in non-election years (+71%), and not badly in Presidential election years (40)%).
6 Month Stock Outlook
By April of 2024, we might be through most of the bad news and economic crisis. The economist’s dour predictions of a 2024 crash/downturn will be done. By then, the Dems will have to capitulate on spending to reduce inflation, and that will drive a massive upward shift in the DOW, S&P, NASDAQ and Russell 2000. See more on the 6 month S&P forecast.
If the FED rate drops and mortgage rates fall, it could stimulate the housing market which fires up everything. There is a crisis in the multifamily sector for overleveraged builders, but those that get through it will see their sales improve by next spring of 2024.
The 5 Year Stock Outlook
For the period 2024 to 2029, we’re looking at impressive growth. This is mostly fueled by lowering interest rates, expanded oil and gas production, bringing manufacturing back to the US, and government spending more in line with reality instead of ideology. The US leadership in AI and microchip manufacturing is key since AI will increasingly influence manufacturing, services and the financial sector. Perhaps even the AI stock market software tools will be useful then. See more on the 5 year market outlook and even check out the 10 year forecast.
Key Market Signals to Watch
Government Debt Crisis and Shutdown: key driver of this current downdraft in stock prices. There will be damage as government credit rating and suppliers are affected after the shutdown. Lower spending means companies will review their risks and their decision to work with the US government going forward.
Lower Bond and Treasury Yields: Right now the FED is sticking it to the equities market due to their desperate search for cash to pay out on debt liabilities. That’s drawn money into the bond market for comparatively weak ROI for investors who want a lot more than a few percent growth. Only equities pay off big and create millionaires. Charles Schwab expects yields to fall in Q3 and into 2024 as inflation continues to cool.
Stock Markets Heading Down: The last 3 months have been strong, but overall support for a strong Q4 is weakening, and Q1 2024 is looking cloudier with rain in the forecast. Yet, after March, investors may the sun shine through.
Regional banks stocks: they’ve seen their stock prices fall strongly last week. The FED noted in its Loan Officer Survey that “Banks reported tighter standards and weaker demand for all commercial real estate loan categories.” Higher for longer interest rates combined with tighter lending standards threaten to slow the economy which relies on credit (real estate).
New Inflation Data: New inflation data released from the Bureau of Labor Statistics showed the (CPI) a 0.3% increase in December to 3.4%, following a 0.1% rise in November. Energy, producer prices and import inflation are consistently negative.
FED Pivot Timing: There is no consensus about the FED easing cycle for 2025. Some believe there will be only one .25% cut in 2025.
Rising Oil and Natural Gas Prices: OPEC looks weak as the US pumps a record 13 million barrels of oil per day, and a very warm winter has led to plummeting natural gas prices. Although middle east wars are causing oil supply fluctuations, it is likely supplies will flow even better in the year ahead, to help keep energy prices down at least for 2024.
Strengthening US Dollar: the US dollar had weakened great but is now on the rise once more (103 dollar index) and that will help foreign investors buy more in the US or invest in fast growing US companies. US exports should enjoy a short period of international trading advantage.
Dow Jones DJI Projections
Currently, for year to date, the Dow Jones is underperforming and Dow Jones stocks are barely up for the year. The economic slowdown, with the rapid rise in credit costs, has stunted manufacturing.
This chart from Barchart (one of the best investing websites to subscribe to) shows few Dow Stocks were thriving despite today’s great rise. However, there will still be a great buy the dip opportunity. Investors should review oil stocks since the price of oil is suppressed. Commodities and energy industry experts believe oil prices will rise — either through OPEC cuts or the depletion of the Special Petroleum Reserve.
What Do the Economists Say about a Recession?
Ethan Harris, head of global economics research at Bank of America Corp. “We’re either going to have a weak economy or a recession.” — TBS News Report
Jamie Dimon of JP Morgan said there’s a 66% likelihood the U.S. is headed into a mild recession or something even worse.
“We put the odds that the economy will suffer a downturn beginning in the next 12 months at one in three with uncomfortable near-even odds of a recession in the next 24 months,” said Moody’s Analytics chief economist Mark Zandi said last May. — Washington Post.
Stock Market Crash Possibilities
There are very few credible market economists who are expecting a crash, although a few believe a downturn in the summer will occur as inflation creeps back up, and the FED responds with a hike. The FED may not hold rates where they are if inflation does pick up by June. It’s sufficient to keep the FED out of the markets and let laisses faire take hold, to the degree it’s currently allowed.
Here’s 7 Factors to Watch as Signals of a Downturn
- inflation persists or rises (wages, energy, consumer prices, rent)
- trade war deepens with all sides refusing to ease their US tariffs and other trade restrictions on the US
- government keeps spending as tax revenues decline (severe cut backs would be needed)
- Interest rates rise (could go up further)
- disappointing earnings in Q1
- consumers losing confidence and pulling back spending fast in Q2
- geopolitical conflict such as China/Russia strife (that will intensify)
- regional bank crashes (believed to be done, but some concerns remain)
- oil price shocks (yes, oil prices are rising fast with supply down and oil sanctions enforced)
What’s the Long-Term Investment Outlook?
The 10 year stock market outlook is less certain of course, but consider that Millennials and Gen Z’s will slowly form more families and this is a massive number of people and a high spending phase of their lives. Additionally, millions of illegal immigrants flooding into the country in their 20’s to 40’s represent additional market demand. Demand drives prices and economic growth which fuels growth for many of the stocks above.
It is a wild period of volatility, conflict, struggle and optimism in the US this year. A year of massive change for the United States. President Trump’s strong stance on pro-American growth sends the message that China is no longer the place to invest in. This continues to anger many hedge fund managers, political groups, bankers and global trade activists who parked their fortunes in China.
But all signals point to the US being the place to invest, and that Trump actually has this agenda figured out.
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