'Trump Rally' Continues... "S&P 500 to Reach 8000 by the End of 2026"

Impact of Trump's Second Term Nationalism
Wall Street Flooded with Optimism for US Stock Market

Major Wall Street investment banks are rushing to express optimism about the U.S. stock market. This is due to growing expectations that President-elect Donald Trump's second term will bring market-friendly policies centered on America-first nationalism. In particular, with the Republican Party expected to secure control of both the executive branch (the White House) and the legislative branch (the federal Senate and House of Representatives) in a 'Red Sweep,' the likelihood of various campaign promises such as tax cuts, deregulation, and trade tariffs being smoothly implemented has increased significantly.

On the 11th (local time), Oppenheimer Asset Management sharply raised its year-end forecast for the U.S. S&P 500 index from 5900 to 6200. This is the most optimistic year-end forecast currently issued on Wall Street, indicating a 3.3% upside potential from the current index level, as the S&P 500 surpassed the 6000 mark for the first time ever that day.

Yardeni Research, in a report released the same day, predicted that "the market's animal instincts are being revived," forecasting the S&P 500 to reach 6100 by the end of this year. They confidently projected it could reach 7000 by the end of 2025 and 8000 by the end of 2026, driven by expectations that the Trump second-term administration will pursue pro-business policies such as corporate tax cuts and deregulation.

Wilmington Trust forecasted the S&P 500 to reach the mid-6000s within the next two months, while Evercore ISI predicted it would hit 6600 by June next year.

JP Morgan observed that the current market rally could be stronger than the rally following Trump's first presidential victory in 2016. According to the U.S. economic media CNBC, after the 2016 election results were announced, the S&P 500 rose 4.64% by the end of that year.

Andrew Tyler, Head of U.S. Market Intelligence at JP Morgan, stated in a memo that the financial sector within the S&P 500 is expected to have the highest returns by year-end. The market believes that the pro-business Trump administration is likely to scrap the 'Basel III' financial capital strengthening regulations that the Biden administration had planned to implement.

Calvey Investment described the S&P 500 surpassing 6000 as "an important milestone that can boost investor sentiment." They also noted that because a significant amount of funds remain in money market funds (MMFs) and bonds, which are considered standby capital for the stock market, the upward trend in stocks could continue.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's 'fear gauge,' hit 14.94 on the same day, marking its lowest level since August last year. This index has dropped more than 20% since the election day on the 5th.

However, concerns about fiscal deficits resulting from the fulfillment of Trump's campaign promises have caused government bond yields to rise, dampening the stock market's momentum. Allspring Global Investments expects the 10-year Treasury yield to rise again to 5%, the highest level since the end of last year. This is about 70 basis points (1bp=0.01 percentage points) higher than the current level.

PIMCO, the world's largest bond fund manager, warned that Trump's economic plans could reignite inflation and halt the Federal Reserve's rate cuts. Dan Ivascyn, PIMCO's Chief Investment Officer, pointed out that "in this case, the U.S. stock market, which surged due to the Republican candidate's overwhelming victory in the election, could reverse."