Evercore ISI forecasts that the S&P 500 will hit 6,800 by the end of 2025. However, they caution a volatile journey ahead thanks to increasing trade tensions and market fluctuations.

1. Trade War II: Major Market Influence

The investment bank highlights that U.S.-China trade tensions typically escalate following market rallies, recalling patterns from the initial 2018 trade war.

Current Market Signals:

• Trailing P/E for S&P 500 stands at 24.9x, suggesting elevated valuations.
• VIX (Volatility Index) currently sits at 16.6, reflecting a combination of complacency and risk.

Following Trump’s initiation of a new wave of tariffs, strength in the market could lead to further trade measures.

2. Defensive and AI-Focused Investment Strategies

To manage market volatility, Evercore ISI advocates the following:

1. Defensive Stocks: Target firms with low volatility and high buyback activity while ensuring stability during uncertainty.
2. AI-Focused Stocks: Invest in companies central to the AI-driven rally, positioned as long-term winners despite short-term disruptions.

3. Market Resilience and Tariff Implications

Despite recent trade concerns, the S&P 500 was only 1.4% below its all-time peak before the tariff announcements.

Investor Takeaways:

• While short-term volatility is anticipated, the potential long-term upside remains intact.
• Trade developments will continue to drive market dynamics.
• Strategically positioning into defensive and AI-focused stocks may offer stability during uncertain times.

As tariff risks evolve, remain alert for potential opportunities during pullbacks while maintaining exposure to leading AI and defensive sectors.