(Bloomberg) -- US stocks and the dollar will be the biggest beneficiaries of American economic growth set to be boosted by Donald Trump’s policies, according to the latest Bloomberg Markets Live Pulse survey.
By year-end, 61% of 553 respondents said the S&P 500 will be higher due to strong US economic and earnings growth. Several cited the incoming Trump administration as a likely catalyst, in a survey conducted after the Federal Reserve’s Dec. 18 policy decision through Dec. 31.
When asked whether Trump’s policies would boost or drag the dollar, or have no major effect, about half said the incoming president will have a net positive effect on the currency, citing the impact of his preference for tariffs. Notably, 27% of survey takers see the same policy as reason to expect a weaker greenback.
The divide highlights the double-edged sword that Trump’s slated policies are expected to have on the US economy and markets. While investors see his stance for lower taxes and looser regulations as a boon to growth, others see his aggressive approach to trade stoking inflation and keeping interest rates elevated — a combination that tends to hurt consumer demand and weigh on US assets.
Tandem Gains
“The two views will come into conflict at some point,” said Timothy Graf, head of EMEA macro strategy at State Street Global Markets. “I expect this to be a higher-volatility environment for stocks and typically their correlation becomes more negative when that happens.”
For the S&P 500, 2024 was a banner year — even with a late-December swoon. It notched 57 record closes, propelled by swelling values for companies including Nvidia Corp. and Apple Inc. Meanwhile, the Bloomberg Dollar Spot Index climbed by the most in nearly a decade. Both were bolstered by a US economy that defied expectations for a slowdown.
“Economic growth is holding up remarkably well, though I do wonder whether some of that is wealth from an equity market that is rising at a pace unlikely to be sustained,” said Kit Juckes, head of currency strategy at Societe Generale. “The dollar can stay at these extremely high levels for as long as the US economy is growing strongly and the rest of the world’s savings are being poured into the US markets, but stronger is a big ask.”
Consumer Cracks
The resilience of American consumers will be an important factor — and cracks are emerging. Higher-income households pulled ahead in spending while their lower-income counterparts are showing increasing signs of financial strain. The latter group will be impacted to a greater extent should Trump’s promised tariffs prompt businesses to pass on higher costs to consumers.
State Street macro strategist Noel Dixon agrees that stocks and the dollar can both extend gains, though he also recognizes the risks to households.
“The bottom 40% of consumers in the US are still under significant pressure,” Dixon said. “Any pick up in inflation due to tariffs or just sustained higher goods prices could sharply weaken demand in the latter half of 2025.”
Inflation Threat
The threat of resurging inflation is likely what prompted 57% of the survey respondents to expect higher Treasury yields as the year begins.
The benchmark 10-year rate jumped to a seven-month high last month, shortly after the Fed’s December meeting showed policymakers scaled back their outlook for rate cuts to just two quarter-point moves this year. That prompted traders to position for the possibility that the central bank would only deliver one reduction, further lifting bond yields.
For State Street’s Graf, the prospect of the Fed pulling back on monetary policy support by either stalling rate cuts or even considering hikes is a low-probability scenario — but one that could still stymie already-expensive stocks.
“The breaking point would be a move to higher rates on the notion that the Fed is either not going to cut any further or might actually have to hike,” Graf said.
--With assistance from David Goodman.
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