The stock market’s feverish rally following Donald Trump’s presidential election victory could have just been an early appetizer for a powerful few months 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 tip of June 2025, about an 11% increase from its current level. A “public reengaged in speculation,” as evidenced by Wednesday’s market motion with bitcoin (BTC-USD) hitting 76,000 for the primary time and Tesla (TSLA) stock soaring 14%, could help drive the benchmark index higher, per Emanuel.
Market tops are sometimes hallmarked by “exuberance,” Emanuel wrote. But with subdued activity within the IPO market and an absence of meme-like motion in stocks where equities are surging without the basics to back them, the true signs of an overstretched market rally aren’t flashing red.
Emanuel admits when considering the S&P 500 is selling at greater than 24 times the past 12 months’ earnings, stocks look expensive from a valuation perspective. But as strategists often indicate, high valuations aren’t typically an awesome market-timing tool.
“Expensive has a history of getting costlier and lasting longer with greater gains,” Emanuel wrote. “This market will likely be driven higher by the policy prospect of deregulation in DC driving a capital market cycle largely absent because the [October 2022] trough.”
Moreover, Emanuel cites the history of a bull markets. The present bull market is 25 months old and boasts a return of 65%. That is well in need of the typical 50-month-long bull market that returns 152%.
The case for stocks to run higher can be supported by the Fed’s cutting cycle, Emanuel argues. Because the Fed cut rates by half a percentage point on Sept. 18, the 10-year Treasury yield has soared about 80 basis points to about 4.42%.
Typically, this is able to be considered a headwind for stocks. As a substitute, the S&P 500 has risen greater than 5%. Emanuel points out the one other time this happened during a Fed rate-cutting cycle was the 1995 “soft landing,” where the economy remained on solid footing and “the beginning of a wonderful stock market epoch” began, per Emanuel.
In a client note on Tuesday night, Stifel chief equity strategist Barry Bannister offered similar sentiment to Emanuel, writing that the” S&P 500 has entered a mania.” Bannister, who’s been bearish on stocks amid the rally, admits the index could keep pushing higher to the low 6,000s in the approaching months. This might come because the S&P 500 reaches an 80-year-high valuation, Bannister wrote. But he also still sees a downside scenario where the index falls from those levels to five,250 a 12 months later.