Wall Street strategists see another 10% rally for the S&P 500 in 2025

Deutsche Bank raised its year-end S&P 500 target to 6,550 from 6,150, citing reduced tariff headwinds and a belief that the Trump administration will likely ease tariffs to stabilize markets, a phenomenon dubbed the "TACO" trade. The upgrade reflects increased earnings per share forecasts for the S&P 500, now predicted to hit $267 this year, up from a prior forecast of $240. FundStrat's Tom Lee also projects a rally to 6,600, pointing to market resilience and substantial money market funds that could fuel further equity gains, despite ongoing trade tensions.

Analysis

Wall Street strategists are increasingly optimistic about the S&P 500's trajectory, with Deutsche Bank notably raising its year-end target for the index to 6,550 from 6,150. This revision is underpinned by a significant upgrade in their S&P 500 earnings per share forecast to $267 for the current year, a substantial increase from the previous $240 estimate, attributed to a diminishing impact from U.S. tariffs as the effective tariff rate has declined from its April peak. This positive reassessment also incorporates the "TACO" (Trump Always Chickens Out) trade theory, suggesting that the administration is likely to moderate its tariff stance in response to adverse market reactions, a pattern already observed. Deutsche Bank's move makes it the fourth strategy team to revise its S&P 500 target upwards after earlier widespread downgrades, signaling a potential shift in market consensus. Further reinforcing this bullish sentiment, FundStrat's Tom Lee projects the S&P 500 could reach 6,600, citing the market's demonstrated resilience to trade tariff headlines and the substantial c. $7 trillion held in money market funds, which could fuel further equity appreciation as investor sentiment, currently not fully rebounded according to AAII data, improves.

Key Decisions for Investors

• Investors should consider the increasingly bullish S&P 500 targets and upgraded earnings forecasts from prominent Wall Street strategists when reviewing equity allocations, potentially indicating further upside.
• It remains crucial to closely monitor developments in U.S. trade policy and tariff implementations, as these factors are identified as primary drivers for revised market outlooks and the sustainability of the 'TACO' trade thesis.
• The significant capital ($7 trillion) currently in money market funds represents a potential catalyst for market advances; therefore, tracking fund flows and shifts in investor sentiment could offer leading indicators for market direction.