Frequent upward adjustments of target prices still underestimate the rise of U.S. stocks, Wall Street rarely "chases the rise"

According to the Zhitong Finance APP, since the rebound of U.S. stocks from their lows at the beginning of the year, sell-side strategists have repeatedly raised their market targets but have consistently underestimated the strength of this round of increases. Currently, the S&P 500 index closed at 6,486 points, nearly 3% higher than the year-end expectations tracked by Bloomberg for industry averages. Such a significant gap between expectations and actual returns has only been seen in 2024 and 1999. This gap highlights how troubled Wall Street forecasters have been lately—despite the index having shaken off the shadows of the Trump trade war and signals of economic cooling, the unexpected earnings growth, the frenzy for AI tech stocks, and the prospects of Federal Reserve interest rate cuts continue to overshadow potential risks.

Due to the rapid market rise, strategists from institutions like Goldman Sachs and Deutsche Bank have been "rushing to catch up" with the market: since the significant drop triggered by Trump’s tariffs at the beginning of the year, followed by an unexpected rebound in the S&P 500, they have raised their forecasts multiple times but still cannot keep up with the actual market gains.

Ed Yardeni, founder of Yardeni Research, pointed out: "Analysts are typically conservative before earnings season, but this time they are 'excessively conservative,' and strategists are the same. I have always been a proponent of the resilience of the U.S. economy, but even I was shocked: under the heavy hand of Trump’s tariffs, corporate earnings (especially profit margins) didn’t even 'bat an eyelid' and were completely unaffected."

Additionally, since July, earnings growth expectations have been steadily rising, providing another optimistic reason for stock investors. Data shows that analysts have raised their profit growth expectations for S&P 500 constituents from 7.1% after Labor Day (early September) to 9.4%, supporting investor optimism.

Yardeni has raised his year-end index target from 6,600 points to 6,800 points this month, admitting that the number of upward revisions this year has set a personal record, and he believes there is a 25% chance of breaking 7,000 points in 2025, which could be higher if the Federal Reserve continues to cut rates.

However, the cautious attitude of strategists has its reasons: the S&P 500 has rebounded 34% from its April lows, with valuation multiples reaching their highest since January 2021; the ultimate impact of tariffs on economic growth and inflation remains uncertain. But the continued market rise has reignited the optimism seen at the beginning of the year—when strategists predicted a full-year increase of about 13% for the S&P, which was later downgraded to just 2% in May due to the impact of the trade war, marking the largest decline since the pandemic in 2020, until the market continued to rebound in June, prompting another upward revision.

Julian Emanuel, chief strategist at Evercore ISI, admitted: "The strength of the S&P's rise and the lack of pullbacks are surprising." He raised his year-end target for 2025 to 6,250 points and recently projected it would reach 7,750 points by the end of 2026, while on Monday the index was nearing 6,700 points. The Federal Reserve restarted interest rate cuts last week (for the first time in nine months), further boosting confidence in the upward trend—according to Barclays statistics, there have been 16 instances in the past 50 years where the S&P 500 began to decline less than 1% from its historical high, followed by a year of broad market gains HSBC Chief Multi-Asset Strategist Max Kettner emphasized that the current U.S. stock market is enjoying a "win-win" situation: the economy is still growing, and the Federal Reserve has shown a willingness to address the economic pressures faced by low-income groups and small businesses. This policy environment is extremely rare and continues to support investors in adopting an aggressive risk appetite