Wall Street strategists are once again growing more bullish on the outlook for the S&P 500 (^GSPC) this year as a 90-day truce between the US and China on tariffshas sparked a market rally.
On Monday night, Goldman Sachs raised its year-end target for the S&P 500 to 6,100 from a prior forecast of 5,900. Meanwhile, Yardeni Research boosted its year-end projection to 6,500, up from a previous call for 6,000. Yardeni’s more bullish target of 6,500 reflects a roughly 11% additional gain from current levels for the benchmark index. Both firms mentioned diminishing fears of a major growth slowdown as a key reason stocks will continue to move higher.
“We raise our S&P 500 return and earnings forecasts to incorporate lower tariff rates, better economic growth, and less recession risk than we previously expected,” Goldman Sachs chief US equity strategist David Kostin wrote in a note to clients.
“Among our main concerns about Trump’s Tariff Turmoil was that the drop in stock prices would have a significant negative wealth effect on consumers,” Yardeni Research president Ed Yardeni wrote. “After [Monday’s] stock market rally, the negative wealth effect is probably insignificant.”
The forecast raises come after the US and China announced a 90-day tariff delay on Monday. The scaling back of the trade war brought economists’ estimated effective US tariff rate down from roughly 24% to 14%. More importantly, the pause has many on Wall Street feeling like a recession is now far less likely in 2025. This marks a key reversal from the prior two months, where 11 strategy teams, including Goldman Sachs and Yardeni Research, had lowered their S&P 500 targets as concerns over an economic growth slowdown escalated.
But after the latest tariff delay, Goldman’s economics team moved down its recession probability for the next 12 months to 35% from a prior forecast of 45% while boosting its GDP forecast to 1% growth for the year, higher than a prior forecast of 0.5%. Yardeni now sees 2025 GDP in a range of 1.5% to 2.5%, up from a prior projection in the 0.5% to 1.5% range.
Kostin at Goldman points out that increased GDP projections lead to a higher earnings forecast in its S&P 500 target model. He highlighted that a 100 basis point increase in GDP counts for about 3 or 4 percentage points of S&P 500 earnings growth.
“Our updated fair value estimate reflects reduced uncertainty, faster earnings growth, lower inflation, and renewed confidence in the fundamentals for the largest stocks in the index,” Kostin wrote. “However, already-optimistic market pricing of the economic growth outlook as well as uncertainty surrounding the magnitude of impending slowdown in economic and earnings growth will likely keep a ceiling on equity multiples during the next few months.”
A key part of the recent market rally has been a massive comeback in large-cap tech stocks and a resurgence in the broader artificial intelligence theme as a whole. Kostin argues that could have more room to run moving forward.
“AI stocks should regain their momentum as tariff-related volatility diminishes,” Kostin wrote. “We expect investors will be attracted to the secular earnings growth profiles of many AI-exposed equities against a backdrop of modest economic growth, especially in light of relatively undemanding current valuations.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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