Why the S&P 500 and Nasdaq 100 rally supports a stronger US equity outlook

There are, however, plenty of reasons to expect this risk rally to roll on for some time to come:

Resilient Underlying Economy: Although the ongoing government shutdown has delayed numerous data releases of late, the US economy continues to tick along in good health. GDP growth was almost 4% in the second quarter, with the Atlanta Fed GDPNow model forecasting that a similar pace was achieved in the three months to September. Meanwhile, consumer spending remains buoyant, the ISM services PMI north of 50, and recent labour market weakness being more a reflection of the economy adjusting to a new trading environment, as opposed to deeper-rooted structural problems

Robust Corporate Earnings: With the bulk of Q3 earnings season now in the rear view mirror, corporate America has continued to perform well. Not only have the tech megacaps delivered solid figures across the board, while also raising capex guidance as the AI ‘arms race’ shows little sign of slowing, but results on the whole have been impressive. Blended earnings growth for the S&P 500 is running at north of 9% YoY, a pace that would mark the ninth consecutive quarter of earnings growth for the benchmark, while revenues are set to rise not only for the 20th quarter in a row, but also at their fastest pace in three years

Trade Worries Recede: Another episode of the ‘escalate to de-escalate’ negotiating playbook has been and gone, with President Trump’s threat of an additional 100% tariff on Chinese imports having fulfilled its desired aim. Namely, extracting concessions from China to not only restore the flow of rare earths, but also to once again resume purchases of US soybeans, and potentially energy as well. In return, not only has the fentanyl-related tariff been cut in half, but the two sides have also agreed to a year-long ‘truce’. Restoration of the status quo, and much more cordial relations between the two superpowers, clearly allows markets to price out a significant left tail risk as the potential for renewed escalation diminishes significantly

Looser Monetary Backdrop: The FOMC delivered a 25bp cut at the October meeting, following an equivalent move in September, and look set for another such reduction in December too, even if Chair Powell has sought to build a greater degree of optionality into the forward rate path, likely a reflection not only of an increasingly divided FOMC, but also the fact that policymakers are continuing to ‘fly blind’ amid a lack of official data releases. In any case, not only is the direction of travel for rates clear (lower), but the destination is also known (neutral). Whether Powell & Co cut in December or not is unlikely to alter either of those factors

Policy Levers Work Together: Not only did the FOMC announce the aforementioned 25bp cut, but policymakers also confirmed that the process of balance sheet run-off will end at the beginning of December, at which stage maturing securities will be reinvested into Treasury bills. Such a move is a pro-active one, given recent stresses in money markets, with the FOMC remaining in ‘risk management’ mode on this front. Nevertheless, the implication here is not only that the balance sheet is now set to bottom out at around a neutral level (approx. 20% of GDP), but that the two primary policy levers will now be working in tandem with each other, as opposed to pulling in opposite directions, as has been the case since last year, further strengthening the ‘Fed put’ structure

Seasonal Tailwinds: On a 30-year lookback, the first two weeks of November are by far and away the best period of the year for the S&P 500, with the benchmark averaging a 5% gain over that window. There is good reason for this typically solid performance, with this period of the year coinciding with the re-opening of the corporate buyback window as earnings season draws to an end, with both November and December typically being the strongest months for stock buybacks from US corporates. This price-insensitive demand should provide a solid backstop to the market at large

FOMO & FOMU: As we approach year-end, ‘Fear Of Missing Out’ and ‘Fear Of Materially Underperforming’ will likely play an increasing role in trading strategy, especially considering the significant risk rally that has taken place this year, and taking into account how difficult portfolio managers may find it to explain underperformance when almost every asset class has moved higher in an almost straight line since early-May. These forces are likely to keep dips relatively shallow, as participants seek to pounce on any weakness that may occur in order to juice their own returns

Fiscal Tailwinds Emerging: Into 2026, fiscal tailwinds from the ‘One Big Beautiful Bill Act’ should increasingly start to be felt, not only when it comes to corporates, but on an individual level too, which should in turn see consumer spending remain robust, further strengthening the case for ‘US exceptionalism’ to return as we move into next year. At the same time, the Trump Admin’s agenda is increasingly likely to pivot towards the deregulatory policies that have been touted for so long, with cuts to red tape, and supply-side friendly policies likely providing a further boost to stocks

Trump Put: Finally, as we move further into next year, the ‘Trump Put’ is likely to become an even stronger force. While it has been the Treasury market that’s reined in the President at times this year, next year is more likely to see the equity market pick up that mantle, not least as the Admin seek to preserve equity gains, and ensure the wealth effect continues in as positive a fashion as at present, into the midterms next November. In the same way that the old adage suggests participants shouldn’t fight the Fed, not fighting the President is probably a good idea as well