Just days after warning that the S&P 500 could fall another 20% due to a potential recession triggered by escalating tariffs, Goldman Sachs has reversed its stance.
The bank’s strategists have now raised their six-month forecast for the benchmark index to 6,100 from 5,900, in response to easing trade tensions between the United States and China.
The bullish revision came late Monday, with the S&P 500 closing just shy of breakeven for the year at 5,844.
The move marks a swift pivot by the bank, as signs of a tariff détente sparked optimism among equity investors and prompted a reassessment of economic risks.
Goldman Sachs lowers the probability of a US recession
Goldman’s chief US equity strategist, David Kostin, said in a note that the forecast upgrades reflect “lower tariff rates, better economic growth and less recession risk than we previously expected.”
The bank’s chief economist, Jan Hatziu, also cut the probability of a US recession to 35% from 45%, citing reduced pressure on GDP and production.
The recent tariff truce between the world’s two largest economies lowered the US tariff rate on Chinese goods to around 30% from a previous 145%, while China dropped its retaliatory tariffs to 10%.
Though temporary — the deal spans just 90 days — the agreement has provided a shot of confidence to markets rattled by trade uncertainty for months.
Earnings outlook sees significant upgrade
Goldman Sachs also lifted its earnings forecasts sharply.
The bank now expects S&P 500 earnings per share to reach $262 in 2025, up 7% from 2024, versus a previous forecast of 3% growth.
In 2026, earnings are projected to rise a further 7% to $280. The forecast assumes stronger economic momentum and fewer supply-chain disruptions.
The strategists increased their 12-month price-to-earnings (P/E) multiple estimate for the index to 20.4 times earnings, up from 19.5.
While the current multiple of 21 is already near historic highs, they argue that reduced inflation and more clarity around trade policy justify higher valuations.
However, they cautioned that elevated uncertainty still poses risks to both earnings and valuations.
Goldman Sachs picks Meta, Coca-Cola, others as stocks with high pricing power
Kostin’s team advised investors to favour companies with high pricing power that can protect margins despite elevated input costs.
Such firms are likely to outperform even in a more supportive macroeconomic environment, especially as tariffs, though lowered, remain above pre-2023 levels.
Goldman’s picks include Meta Platforms, Booking Holdings, Sherwin-Williams, Snap-On, Adobe, and Coca-Cola, along with several niche consumer and tech names like Wingstop, Etsy, and Doximity.
These stocks have previously outperformed during the 2018-2019 trade conflict.
Other analysts see the S&P 500 going up to 6,500 to over 7,000
Goldman’s optimism joins a growing chorus on Wall Street.
Ed Yardeni of Yardeni Research raised his S&P 500 target to 6,500 from 6,000 and trimmed recession odds to 25%.
Wells Fargo’s Christopher Harvey remains the most bullish, forecasting a year-end 2025 level of 7,007.
Still, some analysts remain cautious.
Adam Clark of Barron’s pointed out that the new average tariff rate, while reduced, is still the highest since 1941.
He also cited the Yale Budget Lab’s estimate that current tariffs cost US households an average of $2,300 annually.
The closing of the “de minimis” loophole, which imposed a 54% duty on Chinese imports under $800, is expected to hit discount retailers like Temu and Shein — and, by extension, lower-income US consumers.
Could Trump’s Middle East visit be the next catalyst for markets?
While markets are hoping for continued momentum, near-term catalysts beyond trade policy are few.
Peace talks between Russia and Ukraine offer limited hope for global risk sentiment, while the Federal Reserve is expected to remain cautious on rate cuts.
All eyes now turn to President Trump’s visit to the Middle East this week, where further trade announcements could maintain market buoyancy.
As Clark notes, “If the market can’t get the certainty of no tariffs, then it will demand a constant flow of positive trade news in its stead.”
For now, investors appear willing to believe that the worst of the tariff war may be behind them.
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