The firms cite the easing of trade tensions as the key reason for optimism.
Citing the easing of trade tension between the U.S. and China, two major Wall Street analysts lifted their outlook for the S&P 500 in 2025.
On Monday, following the announcement of a 90-day pause in the U.S.-China trade war and the elimination of reciprocal tariffs, Goldman Sachs increased its year-end expectation for the S&P 500.
In a research note to clients, Goldman Sachs U.S. Equity Strategist Dave Kostin said the company was boosted its year-end target for the S&P 500 to 6,100, up from the previous 5,900.
The S&P 500 is currently at 5,900, so a target of 6,100 would suggest 3.4% growth from now until December 31. The S&P 500 is essentially flat year-to-date, as of May 13, so a tally of 6,100 would suggest 3.4% annual growth.
“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,” Kostin wrote in a note to clients, reported Yahoo.
AI stocks should bounce back
At the same time, Goldman Sachs reduced the chance of a recession to 35%, from the previous 45%, and boosted its GDP prediction to 1% growth, up from the previous 0.5% growth projection. The rising GDP will lead to higher earnings growth, which should translate to stock prices moving higher.
“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, according to Yahoo.
Kostin noted a likely slowdown in economic and earnings growth in the next few months, reflecting Q2 numbers, could lead to muted stock growth in the near term. But Kostin also expects a resurgence in large-cap tech stocks and AI stocks, which have been beaten down.
“AI stocks should regain their momentum as tariff-related volatility diminishes,” Kostin wrote, per Yahoo. “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.”
Yardeni boosts S&P 500 target to 6,500
Yardeni Research also raised its estimate for the S&P 500, boosting it from 6,000 to 6,500. That would suggest 10% growth from now until the end of the year, and a roughly 10% annual return for the large-cap index.
Like Goldman Sachs, Yardeni raised its target after the China-U.S. trade deal was announced.
“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 in a note to clients, reported Yahoo. “After [Monday’s] stock market rally, the negative wealth effect is probably insignificant.”
Yardeni also lowered the odds of a recession to 25%, from 35%, and lifted its GDP growth projections to 1.5% to 2.5%, from 0.5% to 1.5% growth.
