After the S&P 500’s (^GSPC) feverish return to near-all-time highs, a growing crowd of Wall Street strategists argues that the benchmark index has more room to run higher.
On Monday, Deutsche Bank chief global strategist Bankim Chadha boosted his year-end S&P 500 target to 6,550 from 6,150. Chadha had previously downgraded his target to 6,150 from 7,000 amid Trump’s tariff escalation.
But now with the estimated US effective tariff rate moving lower from its April peak, Chadha sees fewer headwinds weighing on S&P 500 earnings growth this year than when he previously listed nine different ways tariffs could hurt the fundamental outlook for stocks.
Chadha now predicts earnings per share for the S&P 500 hitting $267 this year, up from a prior forecast of $240, as “the direct and indirect drags from tariffs on earnings have shrunk significantly.”
The S&P 500 upgrade also included a nod to the belief among investors that should tariffs weigh on the markets, the administration will likely dial back tariffs — in the same fashion as they’ve done over the past month to stabilize markets.
This newfound confidence was recently dubbed the “TACO” trade, an acronym for “Trump Always Chickens Out.
“The administration relented earlier than we had anticipated, driven primarily by market reaction, and before the emergence of any legal barriers or economic or political pain,” Chadha wrote. “This reinforces the view that if negative impacts of tariffs do materialize, we will get further relents.”
After 11 strategy teams cut their S&P 500 target amid the initial tariff launch, Deutsche Bank is now the fourth team to raise its target as Trump has dialed back his aggressive tariff stance.
Read more: The latest news and updates on Trump’s tariffs
Chadha is one of several Wall Street strategists that has been defending a call for a roughly 10% rise in the S&P 500 over the past several days. FundStrat head of research Tom Lee believes stocks will rally to 6,600 by the end of the year.
In recent research, Lee has cited the market’s resilience to tariff headlines, as seen by rising stocks on Monday despite boiling trade tensions with China and increased tariffs on steel and aluminum. Lee also points out that investor sentiment, as measured by the American Association of Individual Investors, hasn’t fully rebounded. With more than $7 trillion in money market funds that could be deployed into the equity market, Lee argues the rally has further to run as more investors join the march higher.
Morgan Stanley chief investment officer Mike Wilson also believes the S&P 500 will rally roughly 10% and end 2025 at 6,500. Wilson highlighted that analysts’ revisions to their earnings estimates have started inflecting higher, meaning analysts are no longer slashing their outlook for corporate profits as they were at the peak of the recent tariff escalation.
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In a research note on Sunday, Wilson detailed in a chart that when revisions to earnings estimates are inflecting higher, as they are right now, the S&P 500 has typically increased by 13% in the next 12 months.
Wilson also believes that while trade policy uncertainty will remain, its impact is diminishing. When the estimated effective US tariff rate shot from a little over 2% to more than 25% in April, the rate of change in tariffs was massive. Now, as Trump has scaled back tariffs, the moves in the estimated effective US tariff rate are no longer as aggressive.
Wilson showed this by looking at how market volatility, as measured by the CBOE Volatility Index, or VIX, has moved lower in tandem with Bloomberg’s US Trade Policy Uncertainty Index, which analyzes news articles for mentions of trade policy and uncertainty.
“The bottom line is that while uncertainty remains high around the eventual tariff outcome, the rate of change on policy headwinds has become much less onerous.” Wilson wrote. “This has reduced recession risk and is giving corporates and consumers more confidence in the forward looking outlook.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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