Trump: Thanks to Tariffs, U.S. Markets Just Hit Another All-Time High

U.S. markets closed 2025 with a record high, despite ongoing trade tensions and policy uncertainty. The S&P 500 (^GSPC) gained 16%, marking the third straight year of double-digit gains. This continued outperformance was driven by optimism around artificial intelligence and accommodative monetary policy.

President Donald Trump's sweeping tariff policies, however, continue to raise concerns. The average tax on U.S. imports hit 16.8% in 2025, the highest level since 1935, according to the Budget Lab at Yale. These tariffs have coincided with a contraction in U.S. manufacturing activity, higher unemployment, and weakened consumer sentiment.

Goldman Sachs estimates that 82% of the cost of tariffs was borne by U.S. consumers and companies as of October 2025, and that figure is projected to rise to 67% by July 2026. This has led to questions about the long-term sustainability of the current market trajectory.

Why Did This Happen?

The S&P 500 climbed more than 16% in 2025 after rising 23% in 2024 and 24% in 2023. This performance defied expectations, as many analysts had predicted a more modest 7% gain for the year. The continued market rally has been fueled by strong corporate earnings, AI optimism, and rate cut expectations.

Sam Stovall, chief investment strategist at CFRA, notes that for another stellar year in 2026, all market drivers must align. He projects an 8% gain by year-end, but acknowledges headwinds from tariffs and high valuations.

The Institute for Supply Management (ISM) has reported a nine-month streak of manufacturing contraction due to economic uncertainty tied to Trump's trade policies. Unemployment has also reached a four-year high, and consumer sentiment remains weak.

How Did Markets React?

Despite these challenges, market strategists remain cautiously optimistic. Deutsche Bank and Morgan Stanley have both set price targets for the S&P 500 that imply gains of over 10% in 2026. Morgan Stanley's Michael Wilson forecasts a year-end 2026 target of 7,800 for the index, driven by earnings growth, de-regulation, and AI adoption.

Earnings for S&P 500 companies are projected to rise more than 15% in 2026, supported by fiscal stimulus and easier monetary policy. AI spending is expected to play a major role in this growth, helping to expand net margins by 40 basis points.

The Federal Reserve's dovish stance remains a tailwind for the market. Morgan Stanley economists expect additional rate cuts in January and April of 2026, with the 10-year Treasury yield forecast to reach 3.75% by the second quarter. This easing of monetary policy could further support equities.

What Are Analysts Watching Next?

While Trump's tariffs remain a point of contention, some analysts see potential for market surprises. Michael Wilson of Morgan Stanley suggests that the market is underestimating the collective impact of de-regulation, AI, and accommodative fiscal and monetary policies.

The S&P 500 is currently trading at its highest valuation since the dot-com bubble in 2000. This has raised concerns about a potential market correction in 2026, especially as Trump's trade policies continue to weigh on economic fundamentals.

The market will also closely monitor geopolitical developments, particularly in Venezuela and the Middle East. Recent U.S. military actions have sparked discussions around increased defense spending, which could benefit defense stocks like CACI International and AECOM.

In the technology sector, Nasdaq Inc (NDAQ) has shown robust performance. For Q3 2025, Nasdaq reported earnings of $0.88 per share, exceeding the forecast of $0.85. Revenue hit $1.35 billion, up from $1.3 billion expected. The company is projecting continued revenue growth in 2025, with a focus on AI and technology modernization.

Investors will also watch how Trump's policy initiatives affect specific industries. In the energy sector, Trump has proposed substantial investment in Venezuela's oil production, potentially requiring U.S. taxpayer reimbursement for oil firms. This could reshape the energy landscape but remains subject to political and logistical uncertainties.

The U.S. is also leveraging its position as the world's largest oil producer to assert economic influence, with Trump's administration pushing for more favorable trade terms globally. This "transactional hegemony" could reshape international trade relationships in the coming year.

Overall, while the S&P 500 is on track for another strong year, risks remain. A midterm election year often brings increased market volatility, and geopolitical tensions could further complicate the outlook. Investors are advised to monitor both macroeconomic and sector-specific developments as 2026 unfolds.