Wall Street Analysts Now Predict SandP 500 Will Jump After US-China Trade Agreement

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Daniel Li is a financial advisor with a wealth of experience in helping clients achieve their financial goals. Known for his reliability and dedication to his clients' financial well-being, Daniel has earned a strong reputation in the industry.
 

•  13 May 2025
 

Just a short while ago, Wall Street analysts painted a bleak picture for the stock market. Talk of recession, slowing growth, and plunging corporate earnings dominated the headlines. But in a sudden and sharp reversal, they’re now calling for a 10% rally in the S&P500, signaling a dramatic shift in market sentiment following the recent trade agreement between the United States and China.

The past six weeks have been a roller coaster on Wall Street. Early April “liberation day” triggered an escalation in the US-China trade war, leading to sharp market declines and a wave of gloomy forecasts. But momentum has since turned. With the two global powers reaching a new trade agreement that significantly reduces tariffs, investors are breathing easier. While this isn’t a full resolution to the conflict, it marks a meaningful de-escalation—and the markets are reacting fast. Major indices have erased their year-to-date losses and are climbing higher.

Goldman Sachs, which recently warned of a possible 20% crash in the S&P500 due to recession fears, has now flipped its outlook. The firm expects the index to reach 6,500 within 12 months, up from a previous target of 6,200. In addition, Goldman has revised its earnings-per-share forecast for the index to $262 for 2025, a 7% increase from this year, and $280 for 2026, also up 7%.

Goldman's chief strategist David Kostin and his team attribute the shift to three key macroeconomic changes: reduced recession risk, improved growth forecasts, and lower tariffs supporting global trade. The firm also raised its forward price-to-earnings ratio for the $S&P500 from 19.5 to 20.4, a level close to historic highs reached earlier this year. According to Goldman, this reflects easing uncertainty, improving profitability, and expectations for more moderate inflation.

Still, caution remains. Despite the market’s upbeat tone, Kostin and his team warn that uncertainty is far from gone, especially surrounding the unpredictable policy decisions of the Trump administration. That unpredictability could still weigh on earnings and valuations—even as momentum trends upward for now.

In the midst of this cautious optimism, Goldman Sachs is recommending a focus on stocks with strong pricing power companies that can pass rising costs onto consumers and maintain margins despite pressure from higher input prices. Among their picks are $META (Meta Platforms), $ADBE (Adobe), $KO (The Coca-Cola Company), $PLTK (Playtika), $BKNG (Booking Holdings), $SHW (Sherwin-Williams), $JWN (Nordstrom), and $PAYX (Paychex), to name a few.

Even though tariffs have been reduced, they're still higher than they were last year, which means profit margins remain under pressure. In this environment, companies with the ability to control pricing enjoy a clear competitive advantage.

Yet, with all these shifting narratives, the real question is: can forecasts be trusted in such a volatile era? Just two weeks ago, many of these same analysts were warning of an imminent recession. Phrases like “sell your stocks now” and “the $S&P500 will drop 20% by year-end” were dominating the conversation. Today, the same voices are calling for a rally. This isn’t necessarily contradiction—it’s a reflection of the market’s wild swings and deep uncertainty. Under a Trump-led administration that can change course with a single tweet, even the most reliable forecasts become fragile.

That’s why investors need to approach these projections with a healthy dose of skepticism. Other institutions are also revising their targets. Yardeni Research has bumped its $S&P500 target to 6,500, while Wells Fargo’s Christopher Harvey projects 7,007. But these are just educated guesses, not guarantees.

The US-China trade agreement has clearly lifted the mood on Wall Street, but it’s only one chapter in a longer, ongoing saga. Analysts may be adjusting to the current market atmosphere, but in such a volatile landscape especially one shaped by an unpredictable political climate no forecast is set in stone. The $S&P500 might be heading higher for now, but as always, conditions can change in an instant.