Markets set for early 2025 pullback but long-term rally likely, says Yardeni

Investing.com– Financial markets could face heightened volatility in the first half of 2025 under President Trump’s administration, Yardeni Research analysts said, citing rising complacency among investors, alongside a surge in bullish sentiment as potential risks.

Yardeni analysts said that while the Nasdaq nears 20,000, elevated investor optimism might lead to a significant pullback early in 2025. This retreat could coincide with portfolio rebalancing, as investors defer profit-taking to avoid immediate tax liabilities.

Despite potential near-term turbulence, Yardeni remains optimistic about market prospects in 2025. The S&P 500 rally is expected to broaden beyond the Magnificent-7, including stocks like Tesla Inc (NASDAQ:TSLA), which have led recent gains. The index could reach 22,000 by late 2025, supported by economic resilience and improving corporate performance, according to Yardeni.

In a promising sign, President Trump confirmed he would not replace Fed Chair Jerome Powell, who reiterated the strength of the U.S. economy and the lack of urgency to cut interest rates. Additionally, policy discussions led by Elon Musk and Vivek Ramaswamy aimed at deficit reduction may provide long-term fiscal benefits, analysts said in a note.

Overseas, geopolitical developments such as the overthrow of Bashar al-Assad in Syria signal shifting dynamics in the Middle East, potentially reducing regional uncertainties, the brokerage added.

Yardeni concluded that while the start of 2025 might be choppy, longer-term trends suggest a strong setup for the broader market. The firm maintains its bullish outlook, albeit tempered with caution against complacency.