Investing.com -- Evercore ISI projects the S&P 500 to hit 6,600 by mid-2025, driven by “animal spirits” ignited by the outcome of the US election.
"Animal spirits" refer to how human emotion can drive financial decision-making in uncertain environments and periods of volatility.
Trump’s victory in the 47th US election provided the stock market with its largest post-election day gain in more than a century. The S&P 500 closed with an impressive 2.5% rise, while the small-cap Russell 2000 surged by nearly 6%.
But according to Evercore, this favorable market reaction is not simply a short-term bounce but signals the start of a broader "performance chase" that will likely lift the market significantly over the coming months.
Small-cap stocks, particularly those in the Russell 2000, are seen as pivotal players in this rally. Evercore describes a “catch-up” opportunity within small caps, which have lagged behind major indices since reaching all-time highs in 2021.
Factors such as moderating inflation, easing financial conditions, and anticipated Federal Reserve rate cuts are expected to boost small-cap performance.
“Small cap stocks are among the largest beneficiaries,” Evercore strategists led by Julian Emanuel said.
“The Russell 2000 trades at a 19% premium to the S&P 500, below its 32% average premium over the past 10 years,” they highlight, pointing to attractive valuations that could drive continued gains in the index.
Sector-wise, the main benefits according to Evercore are Technology and Communication Services, as well as more defensive sectors like Consumer Staples and Health Care, specifically in areas such as software and biotechnology.
Evercore's bullish case for US stocks is also underpinned by expected Fed policy moves. The investment bank anticipates a quarter-point rate cut anticipated in December, followed by a cut every quarter in 2025 and pausing after September.
Strategists said last week’s election was "momentous." In a race anticipated to be exceptionally close, Trump achieved a surprising victory, winning key swing states, securing the Senate, potentially gaining a House majority, and winning the popular vote.