As Tariff Worries Rock the Stock Market, Wall Street Begin to Reduce Its Targets for the S&P 500 Index

Just a few months into 2025, the U.S. stock market has experienced a sharp decline, prompting some of Wall Street’s top strategists to revise their bullish forecasts for the S&P 500.

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Over the past week, at least two major investment firms lowered their year-end projections for the benchmark index, citing growing uncertainty over President Donald Trump’s shifting tariff policies and the retaliatory measures taken by trading partners. Concerns about an escalating global trade war have unsettled financial markets, leading analysts to adjust their expectations.

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Goldman Sachs strategists, for example, reduced their year-end target for the S&P 500 from 6,500 to 6,200. Additionally, the bank’s economics team trimmed its 2025 U.S. GDP growth forecast, warning that tariffs and political uncertainty could weigh on the economy.

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A day later, Yardeni Research—one of Wall Street’s most optimistic firms—also expressed caution, lowering its “best case” target for the S&P 500 from 7,000 to 6,400. The firm cited concerns that Trump’s second term could lead to stagflation, a combination of slow economic growth and high inflation.

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Following these revisions, Wall Street’s average year-end target for the S&P 500 now stands at 6,607, representing a potential gain of over 17% from Friday’s closing level of 5,638.94. Entering 2025, the consensus forecast had been slightly higher at 6,667, according to a MarketWatch survey of investment banks and research firms.

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Despite these downward adjustments, some firms have maintained their previous projections. Oppenheimer Asset Management and Deutsche Bank still hold their forecasts at 7,100 and 7,000, respectively, while Société Générale, BMO Capital Markets, and Bank of America continue to predict levels between 6,666 and 6,750. Meanwhile, firms like Barclays, RBC Capital Markets, and Wells Fargo Investment Institute have kept their targets at 6,600.

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The shift in sentiment marks a notable change from late 2024, when Wall Street largely expected U.S. equities to extend their rally into 2025 following two strong years of growth. However, the S&P 500 has fallen 4.2% so far this year, while the Dow Jones Industrial Average has declined by 2.5% and the Nasdaq Composite has dropped 8.1%, according to FactSet data.

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At the start of the year, many investors anticipated that Trump’s administration would implement “pro-growth” policies, such as tax cuts and reduced financial regulations, to support the economy and corporate profits. However, progress on these fronts has been limited, with the administration instead focusing on tariffs, immigration restrictions, and a smaller federal government.

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Although not all investment firms have adjusted their year-end targets for the S&P 500, some have adopted a more cautious stance. RBC Capital Markets’ Lori Calvasina, for instance, has maintained a 6,600 target but warned that the market could see a 14% to 20% downturn, potentially pushing the index to 5,775 by the end of the year. However, she emphasized that there is not yet “sufficient evidence” to fully adopt a bearish outlook.

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Similarly, J.P. Morgan’s strategists, led by Dubravko Lakos-Bujas, have upheld their 6,500 forecast but acknowledged that the index might not reach that level until 2026. Meanwhile, Citigroup recently shifted its stance on U.S. equities from an overweight (bullish) position to a neutral outlook, reflecting heightened market uncertainty.

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Despite the recent selloff, some analysts believe the worst of the market correction may already be over. Bearish sentiment among individual investors has increased in the past week, which could indicate that the downturn has reached its low point. However, investors must now assess whether the shift in Wall Street’s outlook will have a lasting impact on market sentiment.

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Historically, Wall Street’s consensus S&P 500 target tends to lag the market by about three months, or 60 trading days, according to Michael Kantrowitz, chief investment strategist at Piper Sandler. Some experts argue that analysts often react to market movements rather than anticipate them. Greg Halter, director of research at Carnegie Investment Counsel, noted that when stocks rise or fall quickly, strategists may adjust their forecasts to align with current levels rather than making bold bullish or bearish calls.

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Wall Street strategists typically determine their S&P 500 targets by multiplying the projected earnings per share (EPS) of the index over the next 12 months by a forward price-to-earnings (P/E) ratio. While EPS estimates tend to be relatively accurate, the P/E ratio is more subjective and can significantly impact price targets, according to Halter.

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For now, corporate earnings expectations for 2025 have remained relatively stable. Wall Street currently forecasts full-year S&P 500 EPS at $271.05, slightly lower than the $274.19 estimate from early January. The index’s forward 12-month P/E ratio has declined to 19.9, down from 21.6 in early January, according to FactSet data.

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Despite a volatile trading week, U.S. stocks rebounded on Friday. The Dow Jones Industrial Average surged more than 670 points, or 1.7%, while the Nasdaq Composite jumped 2.6%, and the S&P 500 gained 2.1%. However, the Dow still logged its second consecutive weekly loss, while the S&P 500 and Nasdaq posted their fourth straight weekly declines.

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As markets navigate ongoing uncertainty, investors remain focused on how trade policy, economic data, and corporate earnings will shape the remainder of the year. Whether the recent downward revisions to the S&P 500 targets prove to be accurate or overly cautious will depend on how these factors unfold in the months ahead.

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