"Hold long positions, but hedge the risks." Why is Wall Street bullish?

Despite the increase in geopolitical risks and market turbulence, the foundation for further growth of the U.S. stock market remains stable, according to Wall Street strategists, writes Bloomberg.

The indicator of the ratio of "bulls" and "bears", calculated by the American Association of Individual Investors, rose to the maximum level since 2024, and the share of stocks in the portfolios of fund managers approached 96%, according to the survey of the National Association of Active Investment Managers, the agency reports. At first glance, Bloomberg points out, this assessment may look contradictory. The backdrop for markets remains tense: the U.S. threatens European countries with economic war for the sake of establishing control over Greenland, political uncertainty in Japan has rocked global bond markets, and the independence of the U.S. Federal Reserve remains under pressure from the administration of U.S. President Donald Trump.

- But Wall Street strategists assume that risk asset markets have historically ignored geopolitical crises, except when such turmoil causes oil prices to spike. "Many investors are concerned that this [geopolitical instability] could shake up stock markets. We are less certain of that," Alestair Pinder, head of emerging markets and equities strategy at HSBC Holdings, wrote in a Jan. 20 research note (as quoted by Bloomberg). Of the 36 major geopolitical events since 1940, he said, the U.S. stock market rose 60 percent of the time in the three months afterward.

- Alexander Altman, global head of tactical equity strategies at Barclays, also told clients that he maintains a favorable risk attitude in the short term, albeit "possibly with increased volatility," at least until the reporting season is over, Bloomberg writes. "The [Barclays analyst] team remains constructive, although it recognizes that the level of volatility is elevated due to the high intensity of the [U.S. presidential] administration," he indicated, adding that "this in turn may confound the equity market trajectory at times."

- Analysts of the trading department of JPMorgan Chase voiced a similar position. "Keep long positions, but hedge risks", keeping tactical optimism with short-term caution, - they recommended to clients, Bloomberg writes.

JPMorgan's optimism, according to the agency, is based on a solid macroeconomic picture, positive corporate earnings momentum and an easing trade war. "This construct is now being put to the test, but it is too early to suggest that the macroeconomic story is deteriorating fast enough for the market to move into a bearish phase," Andrew Tyler, head of global market analytics at JPMorgan, said in a note. "We also believe it is premature to abandon U.S. assets for now and prudent to hedge against a downturn, especially if we see a reversal of Trump's stance following the Davos results," he pointed out.

There is one argument supporting the positive mood of analysts, is the dynamics of corporate profits, Bloomberg writes: according to forecasts, in the fourth quarter of 2025 it will increase by about 9%, and then - in each of the reporting periods of 2026 - will show double-digit growth rates, the agency points out.

So far, the reporting season is going well, according to Bank of America data. In the first week of results releases from S&P 500 companies, 73% of them beat analysts' expectations, above the average of 68% at this stage of the season, analysts said. "If the reporting season confirms expectations, everything else will take a back seat," Dan Greenhouse, chief economist and strategist at Solus Alternative Asset Management, also noted.

In addition, Bloomberg points out, analysts also expect the U.S. economy to be supported this year by tax breaks and real wage growth amid slowing inflation.

According to the latest data, U.S. inflation added 2.6 percent last December in core terms that exclude volatile food and energy prices, the lowest gain in nearly five years.

This article was AI-translated and verified by a human editor