Evercore ISI analysts issued a cautionary note on Monday, warning that mounting stagflation fears could pose significant downside risks for the S&P 500. While their base case scenario projects the index reaching 6,800 by the end of 2025, they warned that a scenario marked by GDP slowing below 1.5% and core PCE inflation rising above 3% could drive the market down to their bear case of 5,200.
“Prolonged tariffs and DOGE uncertainty could raise core PCE by 0.5 percentage points by year-end and reduce monthly nonfarm payroll from 30,000 to 70,000,” the analysts noted, emphasizing that these conditions could “paralyze the private sector” and weigh heavily on GDP.
Evercore’s report underscores that the S&P 500 has historically fallen at an annualized rate of about 10% during stagflationary periods. While the firm maintains its year-end target of 6,800, they caution that a sharp break below 5,700—absent moderation in Trump’s policy approach—could signal more severe downside risks. In such a scenario, energy and defensive sectors, including Health Care and Consumer Staples, might outperform, while earnings growth could stagnate, mirroring the modest 1% EPS growth seen in 2019.
Given the elevated uncertainty, Evercore advises a tactical shift in asset allocation: downgrading equities to underweight while upgrading fixed income and cash positions. Moreover, they recommend taking advantage of market volatility by purchasing stocks when the VIX is high and options when it is low, with a continued long-term focus on AI enablers, adopters, and adapters.
Investors looking to track upcoming economic events that may further impact market sentiment can utilize the Earnings Calendar API for real-time updates on key data releases. Additionally, monitoring shifts in analyst sentiment via the Up/Down Grades API can provide valuable insights into market dynamics during these uncertain times.
In summary, while Evercore ISI’s base case remains optimistic at 6,800, the risk of stagflation—with its associated pressures from tariffs and economic slowdown—casts a long shadow over near-term market performance. Investors are advised to remain cautious and adjust their portfolios as fiscal and monetary policies evolve.
