S&P 500 Sniffs Out Trump Narrative Change  

Trump Shifts Focus To Growth

While the S&P 500 remains sensitive to Trump’s posts on tariffs, the shift emerging in the Trump administration policy will be supportive.

The short-term pain and Main Street focus promoted at the start of the Trump administration has shifted to a much more growth-stimulating and populist approach.

High tariffs to onshore production and raise revenue, coupled with deficit reduction and spending cuts (DOGE), have proved too great a hurdle to deliver in advance of mid-term elections and unpalatable for the stock market.

The focus is now on targeted tariffs to encourage domestic production, tax cuts, and deregulation to support growth.

Capital Flows

Despite stock valuations remaining elevated at current levels, they are below peak and pre-election levels. This, combined with the shift to a stimulative policy, suggests potential for growth in the S&P 500.

That said, U.S. assets remain reliant on foreign capital. The behaviours and policies over the last couple of months are raising questions as to whether being overweight U.S. assets in aggregate is sensible.

There are substantial capital flows into the U.S., which support U.S. asset prices.

While the U.S. is the only market big enough to absorb those capital flows, the weakening value of the U.S. dollar is a factor.

Almost all of the foreign flows into U.S. equities are unhedged, meaning they are not protected against currency fluctuations. Consequently, currencies have an outsized impact on realised returns.

While U.S. assets have rallied and are just short of all-time highs, the U.S. dollar is down significantly relative to other currencies. Investors in Europe or Japan are less concerned about the return in dollars and more sensitive to the realised return in their local currency.

That could lead to foreign investors re-evaluating their U.S. asset exposure.

S&P 500 Key Levels:

The S&P 500 opens in positive gamma today, and the key levels remain unchanged. The gamma flip zone sits at 5780, the call resistance level is 5960, and the put support is 5600.

The probability of resistance at the call resistance level remains high. The S&P 500 must close above this level to confirm the current upside momentum.

Key levels to watch to the downside are the major put wall at 5800 and below that at 5650.