Investing.com -- Uncertainty from the macroeconomic landscape and shifting policies under the Trump administration could create near-term market volatility, but these fluctuations present an opportunity to add exposure, Evercore ISI said in a note on Sunday.
The S&P 500 (SPX), which Evercore predicts will reach 6,600 by mid-2025, is currently at a lofty 25x forward earnings. The investment bank believes that expensive valuations “mean such sensitivity to the macro is likely to continue.”
“Higher volatility is the base case as the new administration’s "Move Fast, Break Things" approach to reinvigorate America risks uncertainty from tariffs, immigration policy and importantly, bond yield movements,” strategists led by Julian Emanuel wrote.
“Yet near-term wobbles present opportunity to add exposure for S&P 500 6,600 by 6/30/25. Few signs of a bubble, in-check Mag 7 valuations, and rising AI adoption will support sentiment,” they added.
Evercore is optimistic about several tailwinds supporting SPX growth, including in-check valuations for key tech stocks—the so-called “Mag 7”—and the rising adoption of AI. The firm expects AI adoption among large firms to rise to 25% by the end of 2025, providing an additional catalyst for market sentiment.
While market swings may continue, Evercore emphasizes that the broader fundamentals remain supportive of a bullish outlook. It advises investors to remain positioned within its “Fed Rate Cut Playbook,” which favors technology, communication services, consumer staples, and small-cap stocks. These sectors are expected to perform well as interest rates decline, with the Federal Reserve projected to cut rates three times in 2025.
The stock market has consistently reached new highs this year, with the latest peak occurring following the Presidential Election. However, they point out that the Advance-Decline (A-D) Line has not mirrored this upward movement, despite breakouts in both large-cap and small-cap stocks. This divergence supports their view that short-term volatility is likely.
On a longer horizon, the strategists note that the overall uptrend in the A-D Line remains intact. They believe that if the A-D Line eventually breaks out, it would confirm that the S&P 500's trajectory to 6,600 by June 30, 2025, is "firmly intact."