Why Trump's tariffs aren't steering Wall Street off a 'bullish' path for stocks
President Donald Trump's tariffs plans have been front and center for investors over the past week, causing investor angst, and at times, jumpy market action.
But looking past the noisy headlines, the stock market has shown several signs of strength, providing equity strategists with ample reason to believe the path higher for stocks remains intact.
Since last Monday's DeepSeek-driven AI sell-off in markets, the S&P 500 (^GSPC) is actually up about 0.3%. And despite some sharp downturns, particularly in pre-market trading, the benchmark index saw less than a 1% decline on Friday and Monday when tariff speculation was running rampant.
DataTrek co-founder Nicholas Colas pointed out in a note to clients that over the past 10 years, the average daily move of the index falls in a range of 1.1% in either direction, showing that recent losses in the market haven't been abnormal.
The same could be said for volatility. The CBOE Volatility Index, known by its ticker as simply the VIX (^VIX), has risen at times in the past week but has yet to close above 19.5, a key level Colas is watching as a sign that volatility is significantly increasing in the market.
"Investors are largely seeing through worrisome trade war headlines, which is entirely understandable," Colas wrote. "President Trump used tariffs as a policy tool in his first term and campaigned on them in 2024. His actions now are therefore not a real surprise."
Colas added that as long as the market action, or the potential downside economic impact of tariffs, doesn't shift materially, his team "will remain bullish on US stocks," despite trade war concerns.
While noise about tariffs, inflation, and the overall path of monetary policy continues to dominate the discussion, the strong trend in earnings continues to be one of the things keeping Wall Street strategists bullish about the market outlook.
As of Friday, the S&P 500 is pacing for year-over-year earnings growth of 13.2% for the fourth quarter, which would mark the fastest rate of growth in three years for the benchmark index. This is higher than the 11.8% growth consensus had expected on Dec. 31, per FactSet data.
Analysts remain confident in the trajectory of future earnings growth too. Deutsche Bank chief global strategist Binky Chadha pointed out in a note to clients that at this point in the quarter, earnings estimates would usually have been cut 1.3%. Instead, they've only been trimmed by 0.6%.
"We actually, despite all this noise, expect earnings to accelerate this year," Barclays head of US equity strategy Venu Krishna told Yahoo Finance.
