US stocks have looked sluggish at times in recent weeks due to rising rates and debate over whether the Federal Reserve will cut interest rates in 2025 sent the S&P 500 (^GSPC) to their lowest levels since the election.

But a better-than-expected inflation reading on Wednesday helped U.S. markets improve, and Bank of America chief investment strategist Michael Hartnett believes President-elect Donald Trump will be more “protective” of the down on the S&P 500 in the coming months.

During his first term as president, Trump saw the stock market this way a barometer of the success of his own administration. Expectations among many investors are that Trump will remain sensitive to a pullback in U.S. stocks during his next term.

And while the tariffs are a concern for investors and corporations, other Trump policies may be positive for the stock market.

Deregulation has been seen as a benefit to the banks and could encourage more deals after a difficult few years. one more crypto-friendly administration has boosted this pocket of the market, and lower corporate tax rates could help corporate profits across industries. Trump’s”America First” mantra also has increased optimism among small businesses and could also be seen as a headwind for small-cap companies.

Hartnett cautioned, however, that other factors such as the high valuation and market concentration seen in the index: with just 10 stocks accounting for nearly 40% of the index — probably also put an upside cap on the S&P 500.

And there remains a question of whether concentrations in certain “Trump operations,” such as small caps, energy stocks and financials, will continue after the post-election takeoff. only to recoup most of their earnings leading up to the inauguration.

Hartnett added that if Trump 2.0 and a rate cut can’t send the small-cap Russell 2000 (^RUTH) sustainably above the 2021 peak, asset allocators are likely to reduce their overweight in stocks.

Broadly speaking, strategists agree that Trump’s policies could still be a headwind for the US stock market but don’t think these gains will come in a straight line.

“January’s volatility ahead of Trump’s inauguration on 01/20 reinforces the core view of a more volatile year,” Julian Emanuel, who heads the quantitative strategy team, wrote late Thursday. and shares of Evercore ISI in a note to clients.

Emanuel, who sees the S&P 500 ending 2025 at 6,800, or about 13% higher than current levels, still argues that the Trump administration will lead to a continued shift between “risk-on” sentiment and “risk-off” among investors.

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