Investing.com -- Evercore strategists see the S&P 500 index climbing to 6,600 by mid-2025, citing several tailwinds likely to emerge in the wake of Donald Trump’s return to the White House.
The election outcome, which quickly secured a decisive win for Donald Trump and a potential Republican sweep in Washington, has improved investor sentiment.
Strategists led by Julian Emanuel suggest that Trump’s victory is catalyzing a "meltup/performance chase," driven by increased consumer confidence and a resurgence in speculative trading across assets, from Tesla (NASDAQ:TSLA) to small-cap stocks and cryptocurrencies.
Emmanuel notes that while current valuations are high, with the S&P 500 trading at a price-to-earnings (P/E) ratio of 24.6x, "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” which was largely absent since the market trough in October 2022.
Evercore believes that exuberance, defined as extreme sentiment and valuation, will play a pivotal role in driving prices even higher.
“Exuberance lies ahead; President-Elect Trump will move fast on policy initiatives, and stocks will move fast in response,” the note emphasizes.
As such, strategists introduce a June 30, 2025 price target of 6,600 for the S&P 500. This target is based on a projected earnings per share (EPS) of $257 for 2025, reflecting a price-to-earnings (P/E) ratio of 25.7x.
For 2024, they expect an EPS of $240, implying a slightly higher P/E ratio of 27.5x.
Historically, bull markets average a 152% gain over 50 months. Emanuel argues that this bull market, which is currently 25 months old with a 65% gain, still has room to grow.
Small caps, which are benefiting from a “soft landing on solid ground,” are expected to outperform due to reduced business uncertainty and a favorable environment for smaller firms.
The Fed’s recent rate cuts are also central to this outlook, with Evercore maintaining that a series of cuts will continue through 2025.
This shift aligns with what Evercore calls the "Fed Rate Cut Playbook," which typically favors tech and communication services, small caps, and defensive sectors like consumer staples and healthcare.
Emanuel advises investors to consider a barbell strategy, combining growth sectors with defensives to navigate potential headwinds from interest rates, which remain a "wall of worry" for some investors.