Investing.com -- Evercore ISI strategists highlighted seeveral potential market surprises that could emerge in 2025, under Donald Trump’s second presidential term. Trump is preparing to take office as the 47th President of the United States on January 20, assembling a team poised to implement transformative changes in domestic governance and foreign policy.
Here’s a summary of the key possible surprises, according to Evercore:
1) Three-peat for the S&P 500: Despite elevated valuations and rising yields, Evercore suggests the S&P 500 could post a third consecutive year of 20%+ returns. The firm cites a surge in AI adoption as a key driver and notes that "high valuation alone doesn’t end bull markets."
2) Stabilized S&P 500 EPS Estimates: Evercore challenges the widespread expectation of declining earnings estimates in 2025, arguing that strong margins and moderate dollar strength could keep the current $274 EPS projection intact.
“If economic growth comes in above estimates – especially overseas – the Dollar moderates its strength, and already elevated margins remain elevated for yet another year, EPS estimates don’t have to fall,” strategists led by Emmanuel Cau noted.
This could be especially good news for the “other 490” stocks in the S&P 500 index, which are projected to outperform the Magnificent 7 group for the first time since ChatGPT launch.
3) Bond Yields Breaking the "4s" Range: While most investors expect 10-year US Treasury yields to remain between 4% and 5%, Evercore highlights potential catalysts, such as a debt ceiling crisis, that could push yields sharply higher—or lower.
4) Oil Prices Falling Below $65 Per Barrel: Geopolitical developments, including possible peace deals in Ukraine or the Middle East, could send oil prices below $65. Evercore notes that this would not only ease inflation but also strengthen the U.S. government’s fiscal flexibility.
5) China's Equity Market Outperforming: Although the Chinese economy faces challenges, Evercore posits that stimulus measures and improved investor sentiment could make China the best-performing market of 2025.
This scenario would surprise many given the country's ongoing struggles and Trump’s plans to exert maximum tariff pressure on China.
“If 2018, when the original Trade War broke out, is any indication, Chinese shares could be in for another rough ride,” strategists said.
However, sometimes “things can get so bad that the slightest bit of positive news can spark a major rally,” they added.
6) Credit Market Turmoil: Another possible surprise that could occur in 2025 is a widening of credit spreads, even without a recession. Growth concerns stemming from China or US policy uncertainty could lead to market disruptions, making this an area to watch closely.
7) Subdued Equity Volatility: Though Evercore’s base case expects a volatile year akin to 2018, the firm sees a possibility for calm, resembling 2017. Lower stock correlations and reduced uncertainty could suppress the VIX, benefiting small-cap equities.
“Similar to the Election of 2016, we’ve seen a spike and then a decline in Small Business Uncertainty. Such a turnaround catalyzed a period of post-Election Small Cap outperformance in 2016-17 and we view a similar period of Small Cap gains ahead, particularly in the event that Yields moderate their ascent in coming months,” strategists explained.
8) Bipartisanship in Washington: In a surprise scenario, Evercore envisions cooperation between Republicans and Democrats to address fiscal issues without expanding the deficit. While deemed highly unlikely, such bipartisanship could significantly boost government bond yields.