Bulls Are Back in Town. Tariff Relief Has Led Goldman and Wall Street Optimists to Raise Their S&P 500 Targets.

After a strong, tariff-deal-driven surge on Monday, investors appeared ready to pause on Tuesday. However, some Wall Street strategists remained optimistic and quickly revised their forecasts to reflect a more bullish outlook. Among the most notable was Goldman Sachs, which issued an upgraded call on the S&P 500.

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Just days after warning that the S&P 500 could fall as much as 20% due to the economic risks posed by tariffs, Goldman’s strategists reversed course late Monday. They raised their six-month target for the index — corresponding to the end of 2025 — to 6,100, up from a previous estimate of 5,900. This shift followed Monday’s close, which saw the index finish at 5,844, bringing it close to flat for the year.

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Goldman’s chief U.S. equity strategist, David Kostin, explained that the bank had revised its forecasts upward to account for a more favorable economic landscape. “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’s team wrote.

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In a related update, Goldman’s chief economist Jan Hatzius cut the firm’s recession probability to 35%, down from 45%. This adjustment reflects a reduced potential hit to GDP, lower risk of significant delays from Sino-U.S. tariffs, and what Hatzius called an “encouraging signal about future tariff policy decisions.”

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Goldman also raised its earnings-per-share (EPS) projections. The bank now sees 2025 EPS reaching $262, representing a 7% annual gain, compared to the 3% increase forecasted earlier. For 2026, they now expect EPS to hit $280, also a 7% year-over-year increase — slightly above their earlier 6% estimate.

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In addition to higher earnings expectations, Goldman also lifted its 12-month forward price-to-earnings (P/E) ratio projection for the S&P 500 from 19.5 to 20.4. This means investors are now expected to pay more for each dollar of earnings, reflecting improved market sentiment.

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The current P/E multiple stands at 21, placing it in the 90th percentile dating back to 1990. Though this is still about 5% below the recent peak of 22, it underscores a significant premium investors are willing to assign to earnings amid improving conditions.

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The revised P/E estimate of 20.4, according to Goldman, reflects “reduced uncertainty, faster earnings growth, lower inflation, and renewed confidence in the fundamentals for the largest stocks in the index.” However, Kostin’s team warned that risks remain, as uncertainty surrounding the economy and policy decisions could still impact both earnings and valuations.

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As for investment strategy, Goldman recommends focusing on companies with strong pricing power — those that can sustain profit margins despite elevated input costs. Even with an improved growth outlook, tariffs remain higher than they were last year, which could continue to pressure margins. Historically, during the 2018–2019 trade dispute, stocks with high pricing power outperformed their peers.

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Among the stocks Goldman included on its pricing power watchlist are Meta Platforms, Electronic Arts, Playtika Holding, Booking Holdings, Wingstop, Etsy, Doximity, Sherwin-Williams, Paychex, Nordstrom, Snap-On, Coca-Cola, Colgate-Palmolive, and Adobe.

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These companies have demonstrated an ability to maintain or raise prices without significantly sacrificing sales volumes, a key trait in inflationary or tariff-heavy environments.

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Goldman Sachs wasn’t alone in upping its S&P 500 target. Ed Yardeni, president of Yardeni Research, also raised his forecast, now calling for the index to reach 6,500, up from a previous 6,000 target. Yardeni likewise lowered his recession odds, from 35% to 25%, citing similar factors that contributed to Goldman’s revised view.

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Currently, the most optimistic strategist on Wall Street is Christopher Harvey of Wells Fargo Securities. He’s projecting that the S&P 500 will reach 7,007 by the end of 2025, making him the most bullish among major analysts.

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Despite the upbeat outlooks from several strategists, Tuesday morning saw U.S. stock futures take a modest step back following Monday’s substantial gains. S&P 500 futures, along with Dow and Nasdaq futures, all showed slight declines. Treasury yields also moved lower, reflecting ongoing investor interest in safe-haven assets, while gold prices began to rebound. The U.S. dollar, which had gained during the tariff news cycle, gave back some of those gains.

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In summary, after a surge in optimism triggered by trade developments, Wall Street strategists have begun to adjust their outlooks to reflect lower recession risks, improved earnings expectations, and more stable macroeconomic conditions. While markets may take a breather in the short term, the longer-term sentiment among top analysts has grown increasingly bullish.

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