Investing.com – Strong US economic indicators and corporate returns this week have likely whetted the appetite for riskier assets among some recently cautious investors, according to analysts at Barclays (LON:).
Data has shown that so-called “core” inflation — stripping out volatile items like food and fuel — rose by less than anticipated in December, while other figures pointed to resilient consumer spending activity and a labor market that is on solid ground.
Meanwhile, quarterly earnings from major Wall Street lenders, a possible bellwether for the state of corporate America, have been robust thanks in large part to a renewal in dealmaking activity.
The numbers have revived hopes for a “goldilocks” scenario, in which the economic environment is ideal for equities, the Barclays analysts said in a note to clients on Friday.
This has “likely prompted some re-risking” among traders who had adopted a “wait-and-see” attitude heading into 2025 due to concerns around elevated stock valuations, the Federal Reserve’s interest rate path and the policies of US President-elect Donald Trump, they added.
Still, the outlook remains cloudy as Trump prepares to formally return to the White House next week, with the Barclays analysts calling his inauguration on Monday the “next key catalyst” for stocks.
“Investors likely need clarity on […] Trump’s agenda to deploy more capital,” they wrote.
Stocks have sputtered somewhat to begin 2025, after having initially surged in the wake of Trump’s election victory in November partly because of hopes that his second term would usher in an era of looser regulations and tax cuts.
The Barclays analysts argued that this “Trump trade” has faltered as investors have assessed his economic stance.
Worries have particularly swirled in recent days around the potential inflationary impact of the President-elect’s proposal to slap sweeping import tariffs on both allies and adversaries alike. Fed officials, for example, have flagged uncertainty around the levies as a reason why they will carefully approach possible future interest rate reductions this year.
Trump is tipped to “act early after his inauguration”, which could help clarify “whether his hawkish rhetoric is largely a negotiation tool, or if he will put the threat into practice”, the Barclays analysts said.
