For the majority of 2024, the stock market enjoyed relatively smooth sailing. While stocks endured a few substantive pullbacks of 5%-plus, the S&P 500 rose nearly 20% between January 1 and October’s end.
But the U.S. presidential election and Donald Trump’s subsequent victory threw a wrench into the mix. The market’s once-steady rise quickly became more like a wild roller coaster ride.
Stocks began falling at the start of the new year, only to rally strongly into mid-February as the S&P gained more than 5%. But then another selloff began. And over the past month, the market has crashed almost 7% lower – its worst selloff since 2022.
The dust may not have settled yet; but we believe stocks are approaching their next turn on this roller coaster – and we think they’ll be roaring higher into the summer.
There are five important reasons driving this bullish outlook…
Ending With a Fizzle
First and foremost, we expect the ongoing tariff drama should soon pass.
The first two months of Donald Trump’s second term as president have been dominated by tariff announcements. For a while, it seemed the president was threatening fresh duties every single week.
All that drama has created significant economic uncertainty, driving slowed economic activity and depressed consumer confidence and stoking inflation fears.
We expect this will all come to a head next week, on Wednesday, April 2 – what Trump is calling “Liberation Day.” That’s when he plans to launch his biggest wave of tariffs yet. According to President Trump, this is the “big one.” It will include reciprocal tariffs on multiple countries, potentially even sector-level tariffs (though recent reporting suggests those could be off the table for now).
But we think this show will end with more of a fizzle, not a bang.
Treasury Secretary Scott Bessent recently said he expects the U.S. to negotiate trade deals with its major trading partners soon after April 2, meaning the tariffs wouldn’t stay in place for long. If he’s right, then all this drama should end quickly.
After all, this is the “big one.” Once Trump negotiates his intended deals on this next batch of tariffs and they are repealed, what happens after? In our view, probably nothing. That’s because there is no “other shoe to drop,” if you will. This is the finale. Once it has concluded, this story should be over.
So, here’s what we see as the base-case scenario. “Liberation Day” comes. New tariffs are enforced. The U.S. negotiates trade deals with its major trading partners. The tariffs get repealed, and we put all this nonsense behind us.
The ensuing relief should help boost stocks into summer.
Two Major Shifts to Boost the Stock Market
Once the policy uncertainty is behind us, the White House will likely shift its focus to tax cuts.
Wall Street abhors tariffs; but it certainly loves tax cuts. That’s why stocks initially soared after Election Tuesday – investors were celebrating the potential major cuts to come.
Much to Wall Street’s chagrin, the White House has been squarely focused on tariffs since Inauguration Day, not making progress on a big tax cut package. But we think that will change by late April.
We expect that once we see resolution to the impending “Liberation Day,” there will be a lot of headlines about politicians inching closer to tax cuts over the summer.
This policy shift from the White House should boost stocks throughout April, May, and June.
And this isn’t the only major shift coming down the pike…
The third bullish factor driving our outlook is that the U.S. Federal Reserve should pivot back into rate-cutting mode shortly.
The Fed did cut interest rates a few times in 2024, but it has been on pause over the past four months amid worries about sticky inflation.
It now appears those inflationary pressures are subsiding, with oil prices dropping below $70 a barrel and the Truflation rate collapsing below 2% in March. Meanwhile, the economy has started to show some signs of stress recently via a slowdown in consumer spending and a big crash in consumer confidence.
As such, it seems likely that the Fed will resume its rate-cutting campaign soon.
In fact, Wall Street thinks another rate cut will happen by July and that the central bank will cut interest rates between two and three times this year. We happen to think that the Fed will cut rates even earlier than that, in June, and believe it could cut up to four times in 2025.
Either way, multiple rate cuts are most likely on the way. And that should help stocks greatly.
A Reinvigorated Economy and Stellar Earnings
Now, as tariff drama passes, tax cut hopes rise, and the Fed lowers interest rates, the economy will regain its strength.
At the moment, all key economic trends are moving in the wrong direction. Consumer spending is slowing, and confidence is falling. As The Guardian noted, the Conference Board’s latest “survey’s measure of future expectations hit a 12-year low and breached a level associated with an economic downturn.”
Not to mention, economic activity is weakening, while inflation expectations are spiking. The Federal Reserve Bank of Atlanta’s Inflation Project reveals that in March, businesses’ year-ahead inflation expectations increased by 0.2 percentage points to 2.5 percent, on average.
But as the shifts that we’ve mentioned come into play, we think that we’ll see every major economic trend reverse course for the better.
Consumer confidence and spending will rebound. Economic activity will be reinvigorated, and inflation expectations will moderate.
If things shake out as expected, this reversal should offer a boost to stocks this spring.
So… tariff drama will end, tax cuts will arrive, the Fed will lower interest rates, and the economy will regain momentum. But perhaps the icing on this bullish cake? Quarterly earnings should be strong, too.
That is, since every key economic trend has been moving in the wrong direction lately, Wall Street has been lowering earnings estimates for the rest of the year. While bearish analysts may cite that as a reason to ditch stocks, we see it as a reason to buy.
The earnings bar has been lowered, making it easy for companies to clear it by the next reporting season. By that time, as we mentioned, key economic trends will likely have all reversed course for the better.
And robust earnings should provide further upside to stocks
Put it all together, and you have quite the bullish cocktail for stocks to recover from their recent selloff and rally into the summer.
The Final Word on a Potential Stock Market Rally
Of course, risks remain.
Our bull thesis does rest on one huge assumption: that the new wave of tariffs coming next week will not stick around for long.
We could be wrong on that.
It’s always possible that the U.S. may not strike many deals with its trading partners, meaning those tariffs could stay in place. More could arrive thereafter, and the ongoing trade war could become embedded into the global economy.
If so, the stock market could be in for a world of hurt over the next few months.
And from where we’re standing, the AI trade is the most likely to offer a safe haven – even profits within a broader selloff – if things take a turn for the worst.
Bloomberg’s Artificial Intelligence Aggregate index (BAIAET) is a strong proxy for the sector at large. It currently stands at major technical support levels (the 250-day moving average) that it hasn’t yet broken. Additionally, at 21X forward P/E, it’s trading at its lowest valuation since its inception, all while estimates for AI companies are still rising like crazy…
Whether you’re looking for security or surplus, it seems that AI is the way to go. And we have a great way to play it.
AI is no longer confined to software or chatbots. As this field progresses at breakneck speeds, we’re quickly entering this boom’s next iteration – the era of physical AI… and humanoid robots.
You’re probably familiar with Tesla’s (TSLA) own Optimus. Now Big Tech is following Musk’s lead to tackle bot development, meaning they’ll likely bring them to market within a few years.
It seems the next stage of the AI Revolution has begun.
And it is time to invest in this next big AI breakthrough – alongside some of the wealthiest people in the world, like Elon Musk himself.
We believe Optimus has the potential to profoundly change the world and go down in history as Musk’s greatest achievement.
And we’ve found a “backdoor” way to invest in this new project.
Learn more about how to get in on a game-changing supplier right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
