MLIV Pulse survey: U.S. economic growth will boost U.S. stocks and the dollar in 2025

According to the latest Bloomberg Markets Live Pulse survey, under the push of Trump's policies, the growth of the U.S. economy will make U.S. stocks and the dollar the biggest beneficiaries. The survey was conducted from December 18 to 31, 2024. Among the 553 respondents, 61% indicated that the S&P 500 index would rise by the end of 2025 due to strong growth in the U.S. economy and corporate profits. Some believe that the incoming Trump administration could be a catalyst.

Meanwhile, when asked whether Trump's policies would boost or drag down the dollar, or have no significant impact, about half of the respondents said that Trump would have a net positive effect on the dollar, citing his preference for tariff policies. However, it is noteworthy that 27% of respondents believe that the same tariff policies are the reason for the dollar's weakness.

This divergence highlights the dual impact that Trump's policies will have on the U.S. economy and markets. While investors believe that his stance on tax cuts and deregulation is beneficial for economic growth, others point out that his aggressive trade policies will fuel inflation and keep interest rates high—this combination often harms consumer demand and puts pressure on the performance of U.S. assets.

Timothy Graf, head of macro strategy for State Street Global Markets EMEA, stated, "These two views will clash at some point." "I expect this will be a more volatile stock market environment, and when that happens, their correlation typically becomes more negative."

For the S&P 500 index, 2024 was a brilliant year—despite a significant drop at the end of December. Driven by soaring stock prices of companies like NVIDIA (NVDA.US) and Apple (AAPL.US), the S&P 500 index set 57 closing highs in 2024. Similarly, in 2024, the Bloomberg Dollar Spot Index recorded its largest increase in nearly a decade. Both U.S. stocks and the dollar were buoyed by the performance of the U.S. economy, which did not slow down as some had feared.

Kit Juckes, head of foreign exchange strategy at Société Générale, remarked, "The U.S. economy is holding up very well. However, I do question whether part of this is wealth generated by the stock market rise, which is unlikely to sustain its pace." "As long as the U.S. economy grows strongly and as long as savings from other parts of the world continue to flow into the U.S. market, the dollar can remain elevated, but strengthening will be a bigger ask."

For the U.S. economy, consumer resilience will be a crucial factor, and cracks are beginning to show. High-income households are leading in spending, while low-income households are showing increasing signs of financial strain If the tariff policy promised by Trump leads companies to pass on higher costs to consumers, low-income families will be affected to a greater extent.

Noel Dixon, a macro strategist at State Street Bank, also believes that U.S. stocks and the dollar may continue to rise, although he acknowledges the risks faced by American consumers. He stated, "The bottom 40% of consumers in the U.S. are still under tremendous pressure. Any inflationary surge caused by tariffs or sustained increases in commodity prices could significantly weaken demand in the second half of 2025."

Surveys show that 57% of respondents expect U.S. Treasury yields to rise in early 2025 due to the threat of rising inflation.

The benchmark 10-year U.S. Treasury yield jumped to a seven-month high last month, as the Federal Reserve hinted in its interest rate decision that the number of rate cuts in 2025 would be reduced to two. This prompted traders to price in the possibility that the Federal Reserve would only cut rates once in 2025.

In Timothy Graf's view, the likelihood of the Federal Reserve either pausing rate cuts or even considering rate hikes, thereby withdrawing monetary policy support, is very low, but this could still impact an already expensive stock market. He stated, "The tipping point will be rate hikes, as the market believes the Federal Reserve will either not cut rates further or may have to raise rates."