Stupid economists or bullish investors?

Stock investors are shrugging off economists’ gloomy predictions about President-elect Donald Trump’s economic policies, betting that his plan will boost corporate earnings and lift markets.

Wall Street’s S&P 500 index He was elevated. They have equity strategies to record highs in the past year and despite the recent pullback Predicted profit The index is up 10 percent this year on the back of strong earnings growth.

That bleak tone contrasts sharply with recent warnings from economists about the potential damage from Trump’s protectionist policies, which they say could hit and increase economic growth. Inflation and limit the Federal Reserve’s ability to cut interest rates.

Some have mixed opinions about how much Trump will implement his plan, uncertainty about how GDP growth will affect the profits of big tech groups driving the market rally, and when to assess the results. The policies of the new president.

“I think economists will take a lot of what Trump has to say,” said Evan Brown, portfolio manager and head of multi-asset management at UBS Asset Management. Investors, rightly or wrongly, are betting that Trump won’t follow at the same rate.

The latest Financial Times polls More than half of the 47 economists surveyed on the U.S. economy forecast “some negative effects” from Trump’s policies.

Many focused on threats to two high-profile Trump policies: trade tariffs and US immigration.

“If I were to steal an economist and look at this new era with a half-empty glass, those exhibits I would refer to would be Exhibits A and B,” says Jurien Timmer, director of global macro at Fidelity. “But the market is seeing gains.”

Analysts forecast 15 percent earnings growth for the S&P 500 in 2025, up about 9 percent from last year, according to data compiled by FactSet. Net profit margins are expected to widen over the next decade.

With uncertainty about which policies Trump will implement or what impact they will have in practice, several fund managers said it was too early to change their profit forecasts.

Barry Bannister, chief equity strategist at Stifel, said: “Immigration initially targeted border control and criminal elements, but with many new immigrants leaning Republican . . . We doubt there will be a mass exodus.

Tariffs designed to boost U.S. exports and investment in U.S. manufacturing could also be targeted instead of the purges Trump has faced, he said.

The contrasting views of economists and investors can stem from either of Trump’s major campaign promises — to “make America great again” through tariffs and immigration restrictions; and Shrinking the federal government – The two groups believe they will dominate over the next four years, said Jason Draho, head of US asset allocation at UBS Global Wealth Management.

In a broader sense, Maga “produces capital” while reducing the “utility of labor,” he added. “While Trump 2.0’s economic policies are more[deregulatory]the investment outlook is more constructive,” he said.

Some point to the lack of a historical correlation between economic growth and stock market returns as proof that even if growth suffers, that doesn’t necessarily trigger a bear market.

“There are many factors other than economic growth that contribute to positive stock market returns,” said Kevin Kang, senior economist at Vanguard.

Trump’s pro-business stance is expected to encourage companies to invest, which will boost revenues in sectors beyond technology.

“You can see that some companies that were reluctant to make investment decisions before are now willing to do so,” said Rick de los Reyes, portfolio manager at T Rowe Price.

Magnificent 7’s revenue is forecast to grow 21 percent this year, down from 33 percent in 2024. That’s still ahead of other sectors, but at a lower rate this year, than for the other 493 members of the S&P 500. According to FactSet, growth was 13 percent this year, up from 4 percent.

Ultimately, both economists and investors can be proven right – but at different times. Investors tend to think short-term, the market often looks at the possibility of future income and tax cuts. In the long run, economists may still be right to worry about whether lower taxes will worsen the federal budget deficit or the potential damage to GDP growth from tariffs and immigration restrictions.

“Loose fiscal policies that support the economy in the near term could lead to shortages and shortages in the medium to long term,” said Mitch Reznick, head of the fixed income group at Federated Hermes in London.