The stock market’s initial response following Donald Trump’s presidential win may be just a precursor to a strong period of gains. “Exuberance lies ahead,” Julian Emanuel, who leads the equity, derivatives, and quantitative strategy team at Evercore ISI, wrote in a note to clients Wednesday night. “President-Elect Trump will move fast on policy initiatives, and stocks will move fast in response.”
Emanuel, who already had a 6,000 call on the S&P 500 for 2024, now sees the S&P 500 hitting 6,600 by the end of June 2025, about an 11% increase from its current level.
A “public reengaged in speculation,” as evidenced by bitcoin hitting 76,000 for the first time and Tesla stock soaring 14%, could help drive the benchmark index higher, per Emanuel. Market tops are often hallmarked by “exuberance,” Emanuel wrote. However, he notes that there is currently a lack of stock surges without fundamental backing, suggesting that the signs of an overstretched market rally aren’t flashing red.
Emanuel admits that the S&P 500, selling at more than 24 times the past 12 months’ earnings, appears expensive from a valuation perspective. Nonetheless, he points out that historically, “expensive has a history of getting more expensive and lasting longer with greater gains.”
“This market will be driven higher by the policy prospect of deregulation in DC driving a capital market cycle largely absent since the [October 2022] trough,” Emanuel wrote. He also cites the history of bull markets.
The current bull market is 25 months old and boasts a return of 65%. This is well short of the average 50-month-long bull market that returns 152%.
Exuberance drives S&P 500 higher
The case for stocks to run higher is also supported by the Federal Reserve’s rate-cutting cycle, Emanuel argues. Since the Fed cut rates by half a percentage point on Sept. 18, the 10-year Treasury yield has soared about 80 basis points to approximately 4.42%.
Typically, this would be considered a headwind for stocks. Instead, the S&P 500 has risen more than 5%. Emanuel points out that the only other time this happened during a Fed rate-cutting cycle was when the economy remained on solid footing, initiating what he describes as “the start of a glorious stock market epoch.”
Stifel chief equity strategist Barry Bannister offered a similar sentiment to Emanuel.
In a client note on Tuesday night, Bannister wrote that the “S&P 500 has entered a mania.”
He admits the index could keep pushing higher to the low 6,000s in the coming months. This would bring the S&P 500 to an 80-year-high valuation. However, Bannister also sees a downside scenario where the index falls from those levels to 5,250 a year later.
The key risk, according to Bannister, is a resurgence in inflation that prompts the Fed to keep interest rates higher for longer than markets are currently expecting. “If inflation proves resurgent … we suspect Chairman Powell’s last 12 months in office (May 2025 to May 2026) are a significant investor risk,” Bannister wrote.
