LIVE MARKETS-Tariffs pose a risk, but WFII believes earnings can propel the S&P 500 higher

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TARIFFS POSE A RISK, BUT WFII BELIEVES EARNINGS CAN PROPEL THE S&P 500 HIGHER

Stocks have been quite choppy so far in 2025 as investors digest an eventful Q4 earnings season, while also assessing the multitude of policy announcements that could impact sentiment or profitability, or both.

While S&P 500 index earnings grew by 9% in 2024, the lion's share of its return can be attributed to multiple expansion, According to Chris Haverland, global equity strategist at the Wells Fargo investment Institute (WFII).

"With valuations near the top end of long-term ranges, we believe there's limited upside to price-to-earnings multiples in 2025," writes Haverland in a note.

Given this, he adds that WFII's 2025 S&P 500 index .SPX target of 6,600 will likely be driven by expected earnings growth of around 12%. (The 6,600 SPX target is about 10% above current levels).

WFII expects that the pattern of outsized tech-related earnings growth is likely to persist in 2025 and 2026. However, Haverland says that the profit growth gap between growth and cyclical groups is likely to narrow over the next couple of years.

And while tariffs may pose a risk to the overall earnings outlook, WFII expects the combination of tax cut extension, deregulation, and organic economic strength to offset the negatives.

Therefore, in this environment, WFII tilts toward quality and favors U.S. over international and U.S. large caps over mid- and small- caps. Overseas, WFII prefers developed market ex-U.S. over emerging markets.

In terms of sectors, Haverland says WFII favors communication services .SPLRCL, energy .SPNY, financials .SPSY and industrials .SPLRCI.

WFII is unfavorable on consumer staples .SPLRCS and utilities .SPLRCU.

(Terence Gabriel)

FOR MONDAY'S EARLIER LIVE MARKETS POSTS:

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MARKETS TAKE THE POSITIVES FROM GERMAN ELECTION - CLICK HERE

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MORNING BID: RELIEF AS GERMAN VOTE DODGES EXTREMES - CLICK HERE