Fed’s Powell opens door to potential rate cuts at Jackson Hole
On Sunday, Citi analysts revised their year-end price target for the S&P 500, lowering it from $6500 to $5600. This adjustment was influenced by a decrease in the 2025 earnings per share (EPS) estimate, now set at $255, down from the previous estimate of $270. Additionally, the revision reflects a more conservative valuation assumption.
The change in Citi’s outlook follows a tumultuous period for the stock market, which saw a sharp decline after Liberation Day and a subsequent 90-day reprieve that sparked a significant rally. Investors were caught off guard by the Liberation Day announcements, leading to a swift drop in the S&P 500, which plunged into correction territory and neared bear market levels from its peak on February 19.
The analysts pointed out that the initial goldilocks sentiment at the beginning of the year has been replaced by considerable uncertainty. This shift in sentiment is largely attributed to the Trump administration’s tariff policies, which are expected to disrupt the global trade system that has been developing since China’s entry into the World Trade Organization in 2001 and even before as China opened up to foreign economic relations.
Citi’s updated S&P 500 target-setting framework is illustrated in Figure 1, which accompanies the revised projections. The report emphasizes the ongoing drama and concern surrounding the China tariff standoff, which continues to be a significant factor in market dynamics.
The recent 90-day pause in tariff escalation has provided an opportunity for potential negotiations, which led to a notable recovery in the markets and some changes in tariff-related investor sentiment. However, the overarching narrative remains one of unpredictability, as the long-standing global trade practices face potential upheaval due to the new tariff strategies. Despite market volatility, InvestingPro analysis shows the S&P 500 maintains a "GREAT" financial health score of 3.31, with a notable achievement of raising dividends for 15 consecutive years. Subscribers can access 3 additional ProTips and comprehensive market analysis tools.
In other recent news, the SPDR S&P 500 ETF Trust experienced a significant trading session, closing with its largest premium to its net asset value since 2008. This surge was partly driven by traders covering bearish positions, with trading volumes reaching about 300% higher than usual. The S&P 500 also saw a notable rise following President Donald Trump’s announcement of a tariff pause, although increased duties for China were implemented. In response to the trade tensions, Bank of America adjusted its S&P 500 target down to 5600, citing potential impacts on corporate earnings due to tariffs from the US and retaliatory measures from China, Canada, and the European Union.
Wolfe Research highlighted the market’s sensitivity to tariff news, advising a defensive investment strategy focusing on sectors like healthcare and utilities. They suggest that ongoing tariff uncertainty could lead to weaker economic data in the future. Additionally, Jefferies analysts have observed volatility in the treasury market, likening it to the "Dash for Cash" phenomenon of Spring 2020, but note that the selloff remains orderly.
Prominent investor Bill Gross expressed concerns about the volatility of US stocks and their reliance on presidential decisions, emphasizing potential long-term impacts on millennial and Gen Z investors. He questioned the wisdom of holding stocks subject to such fluctuations. As investors navigate these developments, the upcoming earnings season is expected to shed more light on the effects of these trade measures on corporate performance.
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