Wall Street says chase the rally, with Goldman and BofA upping S&P 500 price targets

Goldman Sachs Chief US Equity Strategist David Kostin and his team lifted their price targets for the S&P 500 (SPDR S&P 500 ETF) to 6,900 from 6,500 in a new research note, suggesting a roughly 11% increase for the blue chips over the next 12 months. They wrote:

“Earlier and deeper Fed easing and lower Treasury yields than we previously expected, the continued fundamental strength of the largest stocks, and investors’ willingness to look through likely near-term earnings weakness support our revised S&P 500 forward P/E forecast of 22x (from 20.4x).”

The tango between yields on US Treasury bonds — and expected rate cuts from the Federal Reserve — is a complicated (and passionate!) one. (I got into the weeds of it here, for those interested.)

But in the interest of time, think of it like this: all else equal — and yes, all else is never perfectly equal, but let’s pretend — lower bond yields translate into higher market multiples, foremost among them the fabled price-to-earnings ratio. So if earnings stay stable, and bond yields are lower than expected, multiples rise and the market price, in this case the S&P 500, goes up — at least on paper.

And Goldman is penciling in S&P 500 earnings per share essentially on a steady 7% rise over the next 12 months, even amid the large uncertainties related to the Trump administration’s ongoing tariff frenzy.

“Company commentary shows S&P 500 firms plan to use a combination of cost savings, supplier adjustments, and pricing to offset the impact of tariffs,” they wrote.

To put it another way, the panic that accompanied the massive tariffs announced by President Trump in early April — which pushed the S&P 500 to the brink of a bear market — hasn’t been justified, at least so far. Inflation hasn’t gone nuts. That leaves the Fed room to cut, and the economy, which is the key driver of corporate earnings, seems to be more or less hanging in there.

Bank of America market analysts had a similar takeaway in a note published Tuesday. They upgraded their previously bearish price target for the S&P 500, raising it to 6,600 over the next 12 months from 5,600, implying a gain of about 6%, citing the resilience of corporate earnings.

“Corporate transparency has remained intact. Most co’s have continued to guide on profits, and estimate dispersion (a measure of EPS uncertainty) is near post COVID lows,” they wrote.

For the record, that doesn’t mean the market was wrong to panic after the president announced plans to raise America’s trade barriers to levels not seen in a century.

If those tariffs went through as initially announced, they likely would have done a ton of damage. But, of course, they didn’t go through, as the famously improvisational president backed away from the initial announcement within days and muddied the water with weeks of delays, adjustments, carve-outs, tweaks, Truth Social blasts, and nontransparent dealmaking that has significantly muted and obscured the impact of Trump’s trade policy of choice.

Or as my colleague Luke Kawa might have put it, the market failed to take into account the role that the Trump Hot Air Cycle continues to play in Trump 2.0.