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Investing.com -- Strategists at UBS and RBC Capital Markets have revised down their year-end 2025 targets for the S&P 500, primarily due to weaker growth expectations and recession concerns following U.S. president Trump’s announcement of sweeping tariffs.
UBS cut its S&P 500 target to 5,800 from 6,400, pointing to a deteriorating macroeconomic backdrop triggered by "one of the biggest changes in U.S. economic policy in a generation."
The investment bank now assumes a slower recovery path for equities, reflecting reduced earnings prospects and heightened volatility.
UBS cut its 2025 earnings per share (EPS) estimate to $250 from $265 and trimmed its price-to-earnings (P/E) multiple to 20x from 21.5x.
“Higher tariffs and lower growth will mean pressure on U.S. corporate earnings,” UBS’s Chief Investment Officer Mark Haefele said, warning that “risk premia are likely to stay elevated” amid policy uncertainty and softer economic data.
RBC took an even more cautious stance, cutting its S&P 500 price target to 5,550 from 6,200. This marks the firm’s second cut this year and marks a shift from what had previously been its bear case to its new base case.
“Immediately following Wednesday’s Rose Garden tariff announcement, the S&P 500 quickly and decisively exited tier 1 by ending Thursday more than 12% below its February-2025 peak,” strategist Lori Calvasina wrote.
RBC also lowered its 2025 EPS forecast to $258 from $264, citing softer GDP assumptions, margin pressure, and growing share counts.
“We see a lot of uncertainty in the earnings outlook at the moment,” Calvasina continued.
“If our new EPS forecast ends up being too optimistic, we think it makes sense to assume EPS will be flat in 2025 relative to 2024, a trend that we often see in weaker earnings years when non-recessionary shocks occur,” she added.
Both banks caution that the recent tariff moves by the U.S. administration are likely to weigh on sentiment and raise recession risks.
UBS expects U.S. GDP growth to fall below 1% in 2025 and foresees the Federal Reserve delivering up to 100 basis points of rate cuts.
RBC similarly revised its economic model to account for GDP growth in the 0.1% to 1% range, where the average annual S&P 500 move has been a decline of 17%. "This is the most pessimistic model in our toolkit and captures the idea that fear of tipping into recession hits stocks quite hard," Calvasina said.