The big stock market rally sparked by the U.S.-China tariff agreement renewed bullishness in some high-profile market analysts, albeit with a dash of caution.
Yardeni Research President Ed Yardeni, noting the roaring rally Monday, boosted his year-end S&P 500 forecast to 6,500 from 6,000, lowered his recession odds and raised his economic growth forecast after the market boom spurred by the new U.S.-China agreement to temporarily cut tariffs. The market researcher had entered 2025 with a 7,000 S&P 500 forecast.
He noted in commentary that his firm had raised its subjective probability of a recession this year from 20% to 35% on March 5, from 35% to 45% on March 31 as stock prices tanked in response to "Trump's Tariff Turmoil," and lowered it to 35% on May 4. "Now we are lowering it again to 25%," he said.
"Among our main concerns about Trump's Tariff Turmoil was that the drop in stock prices would have a significant negative wealth effect on consumers, especially retired and soon-to-be retiring Baby Boomers, who collectively own about $25 trillion in corporate equities and mutual funds," Yardeni wrote.
"After today's stock market rally, the negative wealth effect is probably insignificant," he added.
Yardeni also raised his real gross domestic product growth range to 1.5%-2.5% this year from his team's previous 0.5%-1.5%, and reiterated his prediction that S&P 500 forward earnings will rise to $300 per share at year-end.
Meanwhile, Wharton School and WisdomTree economist Jeremy Siegel maintained his "long-term bullish stance on equities," with some caveats. Stocks have shown resilience, "but that optimism is predicated on an eventual resolution of tariffs. If real substantial deals fail to materialize soon, markets will have to recalibrate earnings expectations downward, triggering another test of recent lows," he said in his weekly commentary.
Markets expect future deals as "Trump has softened his approach dramatically," Siegel wrote. "The base case: everyone at 10%, China at say 20% is still a jump, but at least will likely prevent a recession. Trade and tariffs remain the main focus for markets," he said.
"Stocks remain attractive relative to bonds, with a nearly 3% real yield premium over 10-Year TIPS. Dividend-paying value stocks in particular should benefit from any (Federal Reserve) rate cuts, and I continue to favor these over more speculative growth sectors in this environment," Siegel wrote.
"But in the short term, investors should brace for volatility. Even if tariffs are partially rolled back, I believe some earnings damage will unfold. The road to recovery in corporate margins will be slow, particularly for global brand perceptions which have been eroded in some countries like Canada and Europe," the Wharton emeritus professor said.
Siegel also said the Fed's reluctance to lower its benchmark interest rate contrasts with "a growing list of warning signs: deteriorating supply chains and uncertainty with an unresolved tariff standoff."
Fed Chairman Jerome Powell's "refusal to shift policy reveals a broader problem," Siegel wrote. "The Fed’s rigid operational framework has locked it into a reactive stance."
Ryan Detrick, chief market strategist at Carson Group, doesn't expect the market to hit new lows.
"More than 50% of the stocks in the S&P 500 are now above their 200-day" moving average, he pointed out.
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