BofA: Trump's Policies to Boost Stocks, but Keep an Eye on This Key Market Area

As the new year unfolds, Bank of America (BofA) analysts have a bullish outlook on the U.S. stock market, with President Trump's policies expected to provide a tailwind for equities. However, investors should closely monitor one key area of the market to capitalize on potential opportunities and mitigate risks.



BofA's head of U.S. Equity & Quantitative Strategy, Savita Subramanian, expects more than 10% upward potential for the S&P 500 and earnings growth to accelerate to 13% in 2025. This optimism is driven by several factors, including Trump's proposed tax cuts, deregulation, and infrastructure spending. These policies are expected to support company earnings and sentiment on stocks, leading to higher stock prices.



However, investors should keep a close eye on the potential impact of Trump's trade policies on the overall market performance. While tariffs and protectionist measures may have some negative effects on certain sectors, BofA believes that they could also spur higher U.S. production, supporting employment and boosting wages. This could lead to a more robust economy and stronger stock market performance.

One key area of the market that investors should closely monitor is the U.S. dollar. BofA expects the dollar to maintain its recent strength over the coming months, supported by relatively robust U.S. economic growth and rising Treasury yields. Trump's tariffs and protectionist trade policies are also likely to bolster the buck. A strong dollar could weigh on the outlook for U.S. multinationals as well as complicate other central banks' efforts to fight inflation as it makes their currencies cheaper.



Investors should also be aware of potential risks and challenges, despite BofA's bullish outlook on stocks. Market volatility, geopolitical tensions, inflation and interest rates, policy uncertainty, grid fragility, AI limitations, and currency fluctuations are all factors that could impact the market in 2025.

In conclusion, BofA's analysts expect President Trump's policies to backstop stocks in 2025, with the S&P 500 poised for significant gains. However, investors should closely monitor the U.S. dollar and be prepared to navigate potential risks and challenges that may arise throughout the year. By staying informed and adaptable, investors can position themselves to capitalize on the opportunities that the market presents.