Donald Trump's policies could disappoint the stock market, but that won't stop another key catalyst from helping the S&P 500 soar to new highs, Capital Economics said.

While investors seem convinced that Trump offers the best outcome for stocks , the research firm pushed back on this idea. Bullish momentum should still drive indexes sky-high next year, but that will only reflect ceaseless enthusiasm for artificial intelligence rather than a boost from new policies.

By the firm's estimates, the S&P will surge to around 7,000 by the end of next year, indicating about 15% upside from current levels.

"However, this has nothing to do with the policies we expect will be delivered," Capital Economics said. "In fact, we think these will be negative for equities, as Trump's second term proves to be neither 'pro-growth' nor 'pro-business.'"

While the market's post-election reaction was euphoric , Capital Economics suggested that investors look more closely at Trump's plans, their likelihood of becoming reality, and the potential impact on the economy.

On the one hand, Trump may be unable to deliver on promised tax cuts even with a Republican Congress.

"The bottom line is that without a filibuster-proof majority in the Senate, Trump would be forced to rely on the convoluted budget reconciliation process. A likely single-digit majority in the House will complicate the process," Capital Economics wrote in a separate note on Friday.

Additionally, Republican legislators may fear negative bond market reactions if tax cuts are pursued, as traders have grown increasingly concerned about rising US debt. The 10-year Treasury yield jumped sharply after Trump's victory as the market priced in higher interest rates, higher government spending, and higher inflation under Trump.

There's also room to doubt Trump's push for deregulation, a promise that has helped drive financial stocks higher. Capital Economics said that Trump had made the same claims of massive deregulation in 2016, with little long-term impact on the market.

Finally, the research firm said it considers Trump's tariff and immigration policy to be net negatives for the economy. Though it remains to be seen if the President-elect will stick to his promise for a 10%-20% universal tariff on all imports to the US, this is enough to weigh on company profit and prospects, the note said.