Wall Street Increases Optimism on US Stocks Amid Tariff Uncertainty

Wall Street Banks Adjust Outlook on US Stocks

Wall Street banks have become more optimistic about US stocks, despite recent announcements from President Donald Trump regarding potential tariffs on major trading partners. Many large companies are expected to remain stable during the upcoming earnings season.

Goldman Sachs and Bank of America strategists have joined JPMorgan Chase, Deutsche Bank, Citigroup, and Barclays in raising their targets for the S&P 500 index. They project the index will increase by 11 percent and 6 percent, respectively, over the next 12 months.

Goldman Sachs noted that recent changes in tariff policy have created significant uncertainty. However, the bank cited several factors supporting a positive outlook: - The financial strength of the largest stocks - Expectations of earlier and deeper interest rate cuts by the US Federal Reserve - Investors' willingness to look beyond possible short-term weakness during the second-quarter earnings season, which begins next week

Bank of America stated that it is important not to underestimate the performance of US corporations. The bank also noted that companies have continued to provide profit guidance despite ongoing uncertainty regarding tariff policy.

Change in Market Sentiment

This increased optimism marks a shift from April, when many Wall Street banks lowered their targets for the main US stock index due to concerns about the effects of the trade dispute. The president's decision to pause some tariffs has contributed to a recovery for the S&P 500, which has risen more than 6 percent this year.

Goldman Sachs announced its revised outlook on the same day that President Trump provided a three-week period for countries to negotiate trade agreements with the US, while also indicating the possibility of new tariffs on South Korea, Japan, South Africa, and other trading partners.

While the White House suggested that the proposed tariffs could be reduced through negotiation, the series of trade-related announcements since early April has created uncertainty for business leaders and investors. Some US companies have revised or lowered their earnings forecasts due to higher expected costs and retaliatory measures.

Investor Response and Economic Indicators

Despite ongoing tariff discussions, many investors appear to be less affected by the announcements. US stocks are generally expected to show solid results in the second quarter, supported by a strong labor market and lower inflation this year.

"We are past the peak tariff uncertainty," said Venu Krishna, head of US equity strategy at Barclays, who now expects the S&P 500 to decline less than previously forecast. "The administration is shifting past the tariff and immigration focus towards the [tax] bill and hopefully some deregulation."

JPMorgan, Citibank, and BlackRock are scheduled to begin reporting next Tuesday, followed by technology companies such as Alphabet and Meta at the end of July. In the first quarter, investors responded positively to large technology companies exceeding profit expectations and providing favorable guidance.

"For all the bad news in the past few weeks... risk assets have shaken off pretty much all of these concerns so far," said Max Kettner, chief multi-asset strategist at HSBC, referring to investors' continued interest in stocks despite policy uncertainty, a recent credit rating downgrade, and geopolitical developments in the Middle East.

Sector Expectations and Earnings Forecasts

Energy stocks are expected to experience lower profits due to declining oil prices this year. Automakers and consumer staples companies may be more affected by potential tariffs.

Citi strategists anticipate average year-on-year earnings growth for the S&P 500 index of 4.5 percent, with large technology companies contributing significantly to this figure.

Most banks have reduced their earnings estimates for the second quarter since April. However, HSBC's Kettner stated that expectations may have been lowered excessively, which could make it easier for companies to exceed forecasts.

The decline in the US dollar—down 10 percent this year against a basket of other currencies—is also expected to benefit companies. Kettner noted that large technology firms generate about 60 percent of their revenues from overseas, making a weaker dollar advantageous for earnings.

"We have a general baseline that the earnings season will not be a major negative surprise," said Christian Mueller-Glissmann, head of global asset allocation research at Goldman Sachs.

Mueller-Glissmann also highlighted interest in whether companies will absorb the cost of tariffs or pass them on to consumers, which could affect profit margins and inflation.

"What we're looking for is always margins," he said. "If you see any signs that returns on equity are being guided down because of some one-off [tariff] shock, that would certainly be something to be concerned about."