### Market Faces Uncertainty as Inflation Risks Loom: Expert Insights

As market clarity begins to take shape, experts caution that a resurgence in inflation from trade tariffs and additional government spending could threaten market momentum and affect potential Federal Reserve rate cuts. Speaking on the issue, Sonal Desai, Franklin Templeton Fixed Income chief investment officer, noted that the sharp market upturn has been driven by expectations of solid growth, deregulation, and tax cuts. However, Desai warned that these factors might also contribute to higher inflation and wider fiscal deficits.

Barry Bannister from Stifel has voiced concerns about the potential for rising inflation and its implications for the S&P 500. Bannister predicts a potential downside risk of 5,250 for the S&P 500 within the next year, contrasting with its recent close above 6,000. He emphasized that if inflation resurges, it could pose significant investor risks, particularly during Jerome Powell’s final year as Federal Reserve chairman from May 2025 to May 2026, compounded by the impending 2026 US midterm elections.

Deutsche Bank, led by analyst Matthew Luzzetti, anticipates an increase in inflation forecasts due to fiscal, trade, and immigration policies championed by Trump. Luzzetti's team estimates inflation may increase by roughly 0.5% to reach about 2.5% by 2026, largely influenced by the inflationary effects of tariffs. Reports indicating Trump’s request for Robert Lighthizer to return as US Trade Representative suggest a potential for more aggressive tariff policies, reminiscent of actions taken during Trump’s first term.

Investors should pay particular attention to hardware stocks within the technology sector, which are seen as highly vulnerable. Morgan Stanley's Erik Woodring highlights that executive orders to reinstate Section 301 tariffs on Chinese imports could result in a 4-7% impact on FY25 EPS for companies under their coverage. Notably, firms such as Dell, HP, and Logitech could face significant challenges.

Veteran economist Nouriel Roubini warned that the combination of potential tariffs and extensions of the 2017 tax cuts could create a precarious situation for both the economy and the market, potentially leading to higher consumer prices. These economic dynamics raise critical questions about the future stability and growth potential of the market amidst emerging inflationary pressures.