Stock market ‘exuberance’ looms ahead with Trump win

The stock market’s feverish rally following Donald Trump’s presidential election victory may have just been an early appetizer for a strong 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 end of June 2025, about an 11% increase from its current level. A “public reengaged in speculation,” as evidenced by Wednesday’s market action with bitcoin (BTC-USD) hitting 76,000 for the first time and Tesla (TSLA) stock soaring 14%, could help drive the benchmark index higher, per Emanuel.

Market tops are often hallmarked by “exuberance,” Emanuel wrote. But with subdued activity in the IPO market and a lack of meme-like action in stocks where equities are surging without the fundamentals 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 more than 24 times the past 12 months’ earnings, stocks look expensive from a valuation perspective. But as strategists often point out, high valuations aren’t typically a great market-timing tool.

“Expensive has a history of getting more expensive and lasting longer with greater gains,” Emanuel wrote. “This market will be driven higher by the policy prospect of deregulation in DC driving a capital market cycle largely absent since the [October 2022] trough.”

Additionally, Emanuel cites the history of a bull markets. The current bull market is 25 months old and boasts a return of 65%. This is well short of the average 50-month-long bull market that returns 152%.

The case for stocks to run higher is also supported by the Fed’s cutting cycle, Emanuel argues. Since 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 would be considered a headwind for stocks. Instead, the S&P 500 has risen more than 5%. Emanuel points out the only other time this happened during a Fed rate-cutting cycle was the 1995 “soft landing,” where the economy remained on solid footing and “the start of a glorious 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 coming months. This would come as 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 5,250 a year later.

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