Increased volatility in US stocks and uncertainty in Trump's policies! Morgan Stanley: Affecting S&P 500 corporate profits by 5-7%

With a series of administrative reforms and tariff policies brought about by Trump (Donald Trump) taking office, the US stock market has shown a volatile trend, and the market has begun to worry that economic growth may slow down. Mike Wilson, chief investment officer of Morgan Stanley (Morgan Stanley), pointed out that this market unrest did not occur suddenly, but began in December 2024, when the yield of US Treasury bonds fell to 4.5%, which became the first warning sign.

The market is worried about the economic slowdown, which all started at the end of 2024.

Wilson explained that policy uncertainty has put certain pressure on the market, for example:

The new policies of the US government may not be conducive to economic growth, such as tariff adjustments, tightening immigration policies, etc.

The Fed (Fed) may delay rate cuts as these policies may keep inflation at high levels.

The tech stock leading the rise may change, with the market leaders, Mag 7 ( Microsoft, Apple, Google, Amazon, Meta, Tesla, Nvidia ), seeing a shift in investment sentiment.

On the whole, Wilson believes that the market trend in the first half of 2025 may be unstable, and investors need to be prepared to face the "ups and downs" of the turbulent market.

The US economy is slowing down, with market attention on consumer confidence and the labor market

Wilson pointed out that another key indicator of economic slowdown is consumer confidence and the labor market.

University of Michigan Consumer Confidence Index: Reflects the views of American households on the economic outlook, influencing consumer behavior.

Labor market data: If it begins to show weakness in the employment market, it may affect the FED's decision and even bring forward the schedule for interest rate cuts.

The Fed is currently widely expected to keep interest rates unchanged until June 2025, but Wilson mentioned that if the labor market weakens significantly, the Fed may cut interest rates early, further affecting investor expectations.

Price changes in services and commodity markets

Speaking about price pressures, Wilson noted that the services sector is still the main force of demand right now, but corporate profit margins are being squeezed, which could affect pricing power.

Service industry demand remains stable, but gross profit is decreasing, making it difficult for companies to pass on costs to consumers.

Commodity market price pressures are small, and the financial and software industries are relatively unaffected, but the semiconductor industry may be affected by tariffs.

Is there still room for the market to rise, still need to evaluate carefully

Despite the market's uncertainty, Wilson still believes that 'there is still a certain chance for the stock market', but one should not be overly optimistic. He explains that although there are still trading opportunities in the market, the S&P 500 index may fluctuate around 6100 points without a clear upward trend.

He believes that investors should pay more attention to individual stock opportunities than index performance, and said: "We always see some people are pessimistic about the market, and the key to investing is to find the right opportunities."

Where are the opportunities in US and European stocks?

Compared to the US market, some investors have begun to pay attention to opportunities in the European stock market. Wilson said that the advantage of U.S. stocks is still to have more high-quality companies, but in the past few months, U.S. stocks have been overvalued and the attractiveness of the European market is rising.

He mentioned that the top five tech stocks in the U.S. account for 35% of the total market value, while the German stock market only has 3%, indicating that the U.S. stock market is overly concentrated in a few companies, increasing market volatility risk. The U.S. market still has more opportunities, but the European market may receive more attention in the rotation.

The US corporate earnings season is approaching, how should the market interpret it

Wilson reminds investors that when companies release their financial reports in the first quarter each year, they typically downplay expectations (Sandbagging), which is a financial management strategy to make future performance look better. He believes:

Corporate earnings expectations may be conservative in the short term, but over time, the market may find that the situation is not so bad.

Investors should not overinterpret the first-quarter financial statements of companies each year and should wait for more data to make decisions.

The tariff impact is coming, and S&P 500 earnings may be affected by 5-7%.

Another key variable affecting the market is tariff policy. Wilson pointed out that if the Trump administration's 25% tariff continues, it may affect the overall profitability of S&P500 companies by 5-7%, which may cause the index to retrace to around 5500.

In addition, tariff policy can also affect FED's decision-making, as it may lead to higher inflation, making it harder for FED to cut interest rates and exacerbating market uncertainty.

Whether Trump's market policy changes, the stock market is no longer the only focus

During Trump's first (Donald Trump) term, Trump often emphasized stock market performance as a result of the administration's economic policies. But Wilson pointed out that the current Trump administration is more focused on immigration, policing and small and medium-sized business development, and has not paid as much attention to the stock market as it did in the first term.

He argues that the government's core goal is to engage the general public in economic growth, not just Wall Street, which could mean that the government's policy direction will be different.

2025 is full of variables, and investors need to be flexible

Wilson concluded that the year ahead may be full of uncertainties, but if the government can push for reforms without overly intervening in the market, the long-term structure of the U.S. economy may be healthier.

However, he also reminded that from now until the end of 2025, the market may experience many twists and turns, and investors should remain flexible and pay attention to policy changes and economic data in order to make the best investment decisions.

This article US stock market volatility and increased uncertainty of Trump's policies! Morgan Stanley: Affecting S&P 500 corporate profits by 5-7% first appeared on ChainNews ABMedia.