Uncertain Impact of Trump Policies on Stock Market Rally

Uncertainty surrounding potential policy changes under President Trump has not halted the stock market's upward trajectory in 2025. The S&P 500 (^GSPC) remains near its record high set earlier this month. However, concerns are emerging that much of the positive news surrounding Trump's proposed policies, including tax cuts, reduced regulations, and government cost-cutting, may have already been factored into stock prices. This could limit the potential for further gains and increase the likelihood of downside surprises once the administration's policy direction becomes clearer.

Citi US equity strategist Scott Chronert acknowledges the ongoing "pro-business" bias in the market but cautions that potential disruptions to fundamentals from policy changes may not yet be priced in. Chronert maintains a year-end target of 6,500 for the S&P 500 but sees "more near-intermediate term downside risk to Trump policy effects than upside opportunity."

The looming question of tariffs, particularly the 25% duties on Mexico and Canada, continues to weigh on investors' minds. Trump's initial deadline of February 1st sent shockwaves through the market, but a one-month extension eased fears. Many strategists now view these specific tariffs as a negotiating tactic rather than a concrete policy.

However, the fast-approaching deadline for negotiations with Canada and Mexico in early March and the possibility of additional tariffs have raised concerns about the potential for market volatility. David Rogal, lead portfolio manager of the BlackRock Total Return Fund (MAHQX), believes there is a chance of a surprise for markets if negotiations fail.

Should tariffs come to fruition, Goldman Sachs chief US equity strategist David Kostin warns of a potential "downside risk" to earnings forecasts and a 5% near-term downside to the S&P 500's fair value. This underscores the market's reliance on strong earnings growth and the potential impact of any disruption to that growth.

"We wouldn't be surprised to see a 5% to 10% pullback," said Victoria Fernandez, chief market strategist at Crossmark Global Investments. "Although earnings have continued to do pretty well, we need to see them hold up in the next few quarters in order to sustain the valuations that we're seeing."