Is the market really immune to tariff shocks? Goldman Sachs and four other major banks collectively bullish on the S&P 500

Despite the Trump administration's renewed threats of tariffs, Wall Street's confidence in the U.S. stock market seems unshaken and is, in fact, growing.

Goldman Sachs joined JPMorgan Chase, Barclays, Citigroup, and Deutsche Bank this week as the latest investment bank to raise its year-end target for the S&P 500 index. The team of strategists led by David Kostin released a report on Monday, raising the year-end target for the S&P 500 index from 6,100 points to 6,600 points. This marks Goldman Sachs' second increase in the index target since May, and if the latest forecast is accurate, it implies a further 5.9% upside for the U.S. stock market before the end of the year.

This wave of optimism comes as Trump threatens to impose high tariffs on several trading partners. According to CCTV News, U.S. President Trump stated on the 7th that starting August 1, tariffs ranging from 25% to 40% will be imposed on imports from 14 countries, including Japan and South Korea.

Although the White House hinted that there is still room for negotiation on the latest tariff proposal, the flurry of trade announcements since early April has cast a shadow over the outlook for corporate executives and investors. However, the market's reaction has been relatively muted, highlighting investors' tendency to become "desensitized" to Trump's tariff rhetoric. Strategists pointed out that the main drivers behind the upward revision of expectations stem from the judgment that the Federal Reserve will cut interest rates earlier, the subsequent decline in U.S. Treasury yields, and the continued strong performance of large U.S. corporations.

Economic Resilience and Fed Expectations as a Stabilizing Force

The collective shift to optimism among investment banks is supported by multiple factors.

Goldman's team also raised the 12-month forward target for the S&P 500 index from 6,500 points to 6,900 points. Strategists noted that although the government's wavering tariff policy creates "huge uncertainty," the "fundamental strength of the largest stocks," hopes for "earlier and deeper" rate cuts by the Federal Reserve, and investors' willingness to focus on the long term collectively support the market outlook.

David Kostin wrote:

"The strong performance of first-quarter earnings has bolstered our confidence."

Regarding the tariff concerns that are widely shared in the market, Goldman did not shy away from the uncertainty they bring but believes that their impact can largely be mitigated by companies. Strategists expect that companies will gradually adjust their cost-cutting and pricing strategies to offset the negative effects of tariffs.

"We expect the digestion of tariffs to be a gradual process," David Kostin noted. He also added that before the tariff rates are raised, large companies' inventories provide them with a certain buffer The market generally expects that the upcoming second quarter earnings season will deliver solid results. This is partly due to the resilience of the U.S. economy, with a still strong job market and inflation levels having eased this year.

Max Kettner, Chief Multi-Asset Strategist at HSBC, stated:

“Despite various bad news over the past few weeks... risk assets have so far shaken off all these concerns.”

“The Seven Tech Giants” Carrying the Profit Flag

The upcoming earnings season is seen as a key test of market strength.

JP Morgan, Citigroup, and BlackRock are set to announce their results next Tuesday, while tech giants like Alphabet, Google's parent company, and Meta will release their earnings at the end of July. In the first quarter earnings season, the key to investor confidence was the better-than-expected profits and optimistic guidance from mega-cap stocks.

Although energy stocks are expected to suffer significant profit impacts due to falling oil prices this year, automakers and the consumer staples sector may also be among the first to be affected by tariffs, the overall outlook remains optimistic. Citigroup strategists expect that the average earnings per share of S&P 500 constituents will grow by 4.5% year-on-year, with the “Seven Tech Giants” potentially contributing nearly half of that growth.

Additionally, the weakening dollar has become a positive factor. So far this year, the dollar has fallen 10% against a basket of other currencies. Max Kettner pointed out that about 60% of the revenue of mega-cap tech stocks comes from overseas, making the weak dollar an “important tailwind” for their profits.

Kettner from HSBC added that while most banks have lowered their second-quarter earnings expectations since April, “in our view, the overall expectations have been cut too much,” which actually creates “a low bar that companies can easily surpass.”

Tariff Cost Impact Remains a Focus of Observation

Despite the optimistic market sentiment, the actual impact of tariff threats remains a focal point for investors. Since April, some U.S. companies have completely canceled or lowered their profit forecasts due to anticipated rising input costs and retaliatory tariffs.

Christian Mueller-Glissmann, Head of Global Asset Allocation Research at Goldman Sachs, stated that one particularly noteworthy issue in the upcoming earnings season is: whether companies will choose to absorb the tariff costs—eroding profits—or pass them on to consumers, potentially exacerbating inflation.

“What we are looking for is profit margins,” he added:

“If you see any signs that guidance for return on equity has been lowered due to certain one-time (tariff) shocks, that would certainly be concerning.”

However, Mueller-Glissmann also stated, “Our fundamental judgment is that this earnings season will not bring significant negative surprises.”