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.
