Stocks saw a brief rally after the Trump administration paused new tariffs, but analysts at GlobalData TS Lombard say that investors are overlooking bigger problems. Daniel von Ahlen, a senior strategist at the firm, warned that markets are not fully pricing in the damage Trump’s policies could cause. Despite signs of strain in the job market and rising inflation, forecasts still expect 1.8% GDP growth in 2024, which von Ahlen believes is too optimistic.
He explained that upcoming government spending cuts, tough immigration policies, and China’s retaliatory tariffs could reduce the labor force, raise business costs, and hurt consumer spending. These issues could push the U.S. into a recession. Yet, stock prices remain high, with the S&P 500 (SPY) trading at 20 times projected earnings and analysts still expecting nearly 9% profit growth in 2025. If a recession happens, these profit forecasts would likely collapse, leaving valuations looking too expensive.
Because of these risks, the firm recommends investors shift toward safer sectors like utilities (XLU), healthcare (XLV), and consumer staples (XLP), and reduce exposure to more economically sensitive areas like financials (XLF) and industrials (XLI). They also favor long-term inflation-protected bonds, such as the PIMCO 15+ Year TIPS ETF (LTPZ), especially after recent yield increases. Overall, GlobalData says markets are too relaxed about the risk of a 2025 recession and advises investors to prepare now.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 410 Buys, 87 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $670.59 per share implies 27.6% upside potential.
