Bank of America strategists stated that if the S&P 500 index (SPX) completely reverses its gains after the election, it will trigger investor expectations for U.S. President Trump to take intervention measures to support the market.
This month, the U.S. benchmark stock index has fallen nearly 3%, partly due to market concerns that Trump's proposed tariff measures could trigger a global trade war. Currently, the S&P 500 index is only about 1% away from the closing level of 5783 points on November 5, the day of the presidential election last year. According to data compiled by Bloomberg, about half of the S&P 500 index components have been in decline since election day.
Michael Hartnett of Bank of America wrote in a report that the closing level on November 5 last year was 'the first strike price for Trump put options. If the S&P 500 index falls below this level, investors currently holding long positions in risk assets will be very eager and need policymakers to provide some verbal support to the market.'
The 80% increase in the S&P 500 index since Trump's election has already been erased.
Hartnett stated that if the U.S. economic growth slows down, leading to further declines in the stock market, bond yields, and the dollar, the most likely policy response would be the Federal Reserve cutting interest rates, followed by an agreement between the U.S. and Saudi Arabia to lower oil prices. The strategist also believes that the U.S. may accelerate the implementation of tax cuts or raise the debt ceiling.
Hartnett said that for risk assets, the most optimistic scenario is that 'the U.S. begins to send signals,' suggesting a possible trade agreement with China. He added that the least likely scenario is that Trump takes more tariff measures in response.
The strategist stated earlier this week that the stock market is Trump's 'traffic light, it will tell him when to go and when to stop.' He reiterated in the report that after the S&P 500 index's performance this year lagged behind other global peers, investors seem to hold a 'skeptical attitude' towards the index's trend.
Article reposted from: Jin Shi Data