In addition to our regular quarterly updates, we’re providing this mid-quarter February update in light of the recent presidential inauguration. We hope you find it insightful!
Currently, there are four key factors we’re closely monitoring as we evaluate the market outlook for this year:
- Trump’s Economic Policy
Since his inauguration, President Trump has already signed dozens of executive orders and memorandums1. President Trump’s economic approach centers on strengthening American individuals and businesses, with a notable focus on tariffs. While these policies aim to benefit middle- and lower-income Americans, tariffs have the potential to create short-term inflationary pressures.
The markets’ reaction to Trump’s presidency will largely depend on how his policies are perceived. Positive sentiment surrounding his economic initiatives could lead to increased investor confidence, boosting demand and valuations. So far, market sentiment has been generally favorable, though concerns about tariffs remain.
- Federal Reserve Policy
The phrase “don’t fight the Fed” has been a recurring theme over the past few years. Historically, a hawkish Federal Reserve—favoring tighter monetary policy—has contributed to market downturns, while a dovish stance with looser monetary policy has often bolstered the market.
Over the last 18 months, the Federal Reserve has leaned dovish, with the exception of its most recent meetings in December & January. In January's meeting, the Federal Reserve “stayed put” and did not cut interest rates, saying they wanted to “wait and see” the effects of President Trump’s policies2. We are closely monitoring the Fed’s policies and rhetoric as they continue to shape market conditions.
- Technical Analysis
From a technical perspective, market indicators remain relatively strong. The S&P 500 is trading above both its 50-day and 200-day moving averages, a bullish signal.
Recently, the S&P dipped near its 50-day moving average, leaving a gap in the chart. Historically, such gaps have a high probability of being filled, potentially driving valuations higher. However, the Stochastic Oscillator indicates downward pressure, suggesting a possible leveling off or decrease in valuations.
In summary, while the technical analysis leans bullish, market conditions could shift quickly based on external news or developments.
(Chart powered by StockCharts.com)
- The AI Bubble
In our view at Cornerstone, the current market shows signs of overinflation driven by the ongoing AI boom. While the AI sector has demonstrated remarkable growth, cracks began to appear with the introduction of “Deep Seek,” a Chinese-run AI company.
This development highlighted some vulnerabilities in both the Nasdaq and S&P 500. While this is a reason for caution, it’s premature to predict a full-fledged bubble burst. For now, we’re carefully monitoring the situation and will adjust our strategies as new data emerges.
Conclusion
We remain cautiously optimistic in our market outlook. By analyzing presidential policies, Federal Reserve rhetoric, technical indicators, and the AI bubble, we see potential risks to the ongoing bull run. However, no single factor currently appears strong enough to warrant a shift in our positioning.
As always, we’ll continue to assess the evolving market landscape and adapt our strategies as needed.
We welcome your feedback—please share your thoughts or questions in the comments section below, or email us at: cornerstone.service@oneascent.com.
References:
- NPR. (2025, January 28). All the executive orders Trump has signed after 1 week in office. https://www.npr.org/2025/01/28/nx-s1-5276293/trump-executive-orders
- Robb, G. (n.d.). Fed takes ‘wait-and-see’ stance on interest-rate outlook. MarketWatch. https://www.marketwatch.com/story/fed-takes-wait-and-see-stance-on-interest-rate-outlook-3bc656c5
OneAscent Financial Services, LLC (“OAFS”), d/b/a The Cornerstone Financial Group, is a registered investment adviser with the United States Securities and Exchange Commission. OAFS does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by OAFS or any unaffiliated third party. OAFS is neither an attorney nor accountant, and no portion of the presented content should be interpreted as legal, accounting, or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly