September 10, 2025: Keep This Bull Running
Stocks can drift higher without an identifiable catalyst, but the chances of a meaningful move higher from here are certainly better if some catalysts emerge. We would point to these possibilities:
Resilient economy. Despite ongoing geopolitical tensions, lingering trade and tariff uncertainties, and a stalled job market, we expect the U.S. economy to avoid recession in the coming year.
Moderating inflation and stable interest rates. Inflation has cooled significantly from its post-COVID-19 surge but remains elevated in some pockets. Even if it takes a few more months for price measures to turn lower from here, we still expect the Fed to embark on a series of rate cuts this year (two, maybe three) and next (another two or three potentially).
Fiscal policy tailwinds and deregulation. We expect business tax incentives and individual tax cuts totaling nearly 1% of U.S. gross domestic product in 2026 to help drive a pickup in economic growth.
Strong AI-fueled growth in corporate profits. Earnings growth in the second quarter was excellent at 12% for S&P 500 companies. Admittedly, a high bar, corporate America could continue to produce double-digit earnings growth through 2026 on the back of continued robust AI investment and productivity gains, alongside tax incentives and regulatory tailwinds.
