The stock market suffered a violent sell-off Wednesday after the Federal Reserve’s disappointing rate-cut outlook, and Yardeni Research is telling clients to buckle up as the worst is yet to come. First, the Wall Street firm believes that early January could see big selling action from investors who opt to defer their capital gains to next year, effectively pushing their tax bill to 2026 from 2025. “We think that the stock market might remain sloppy through January,” Yardeni Research said in a note to clients Thursday. “Some investors might be planning to take their substantial profits early next year rather than now to defer capital gains taxes.” Second, volatility could come from a potential dockworkers strike in the new year as well as President-elect Donald Trump ‘s likely action to slap tariffs on major U.S. trading partners. “There could be a longshoreman’s strike in mid-January because they oppose automation at the ports. Trump publicly declared that he agrees with the dockworkers,” Yardeni said. “On day one of Trump 2.0, a blizzard of executive orders will likely include a bunch imposing tariffs and authorizing deportation of illegal migrants.” .SPX YTD mountain S & P 500 Investors have been especially worried about Trump’s protectionist trade policy, which could make producing goods more expensive and raise consumer prices, just as the Fed struggles to control inflation. Because of these risks, Yardeni believes there is a chance for a 10% market pullback in the bull market. Still, the firm is standing by its 7,000 target for the S & P 500 in 2025, which would translate in to a 19% rally from Wednesday’s close of 5,872.16. “We can’t rule out a 10% stock market correction, but we would view that as a buying opportunity rather than as a reason to panic out of the market since we don’t expect a recession or a bear market,” Yardeni said. The S & P 500 slumped 3% and the Dow Jones Industrial Average extended its longest losing streak since 1974 after the Fed projected only two interest rate cuts in 2025, down from the four reductions that had been penciled in at a meeting in September.
How the market pullback could get worse in January
