The Market Could Inch Higher This Year. Don’t Hold Your Breath for Big Stock Gains.

Bank of America and Goldman Sachs expect that investors will have to wait a bit for bigger gains in the S&P 500. (Michael Nagle/Bloomberg)

Wall Street analysts are starting to nudge their 2025 price targets for the S&P 500 higher heading into the back half of the year, but the modest forecasts suggest that near-term gains will be harder to come by following the searing spring rally.

The S&P 500, the broadest measure of U.S. stock performance, has risen more than 25% since its April 8 nadir. The benchmark is now up just under 6% for the year and trading near the highest levels on record.

Investors are betting that a stimulative tax and spending bill, lighter corporate regulations, and eventual Federal Reserve interest-rate cuts will act as a tailwind for stock performance over the second half of the year.

But tariff uncertainty, slowing corporate earnings growth, sticky inflation, and a cautious consumer are likely to limit near-term gains, according to a note published Tuesday by Bank of America.

“It’s hard to identify a positive catalyst for the S&P 500 to continue its meteoric run into the third quarter,” said BofA’s head of U.S. equity strategy Savita Subramanian. “Earnings are unlikely to surprise to the upside from here and the meat of corporate profits, tech company earnings, are slated to decelerate.”

She also argues that the One Big Beautiful Bill Act (OBBA) may have a muted impact on growth and that the Fed is likely to hold rates steady at least until September.

BofA lifted its year-end target for the S&P 500 by 700 points, taking it to 6300, but the overhaul amounts to only a modest 1.1% advance from current levels.

The larger gains, the bank suggested, could come next year: BofA’s 12-month price target is 6600 points, a 6% increase from current levels.

“Despite tentative trade deals, the OBBA and receding recession risks, policy uncertainty is near all-time highs and sovereign yields are at multi-decade highs,” Subramanian and her team wrote.

“But corporate transparency has remained intact. Most companies have continued to guide on profits, and estimate dispersion (a measure of earnings uncertainty) is near post COVID lows,” they added.

Goldman Sachs’s David Kostin, who heads the bank’s equity strategy team, also sees corporate America’s resilience as a key component of his bullish S&P 500 update, which was published late Monday. The bank altered its S&P 500 forecasts for the fourth time this year, lifting its year-end target for the benchmark by 500 points, taking it to 6400.

However, like Bank of America, Kostin and his team see firmer gains in 2026. The bank’s 12-month price target now stands at 6900 points, an 11% advance from current levels.

Kostin said “earlier and deeper Fed easing and lower bond yields, continued fundamental strength of the largest stocks, and investors’ willingness to look through likely near-term earnings weakness” supported the price target changes.

However, Goldman forecasts S&P 500 growth of only around 7% for this year and next, compared to the LSEG consensus of around 8.5% and 14%, respectively.

“The shifting tariff landscape creates large uncertainty around our earnings forecasts,” Kostin and his team wrote. “But recent company commentary shows S&P 500 firms plan to use a combination of cost savings, supplier adjustments, and pricing to offset their impact.”

“We expect the digestion of tariffs to be a gradual process, and large-cap companies appear to have some buffer from inventories ahead of the
increase in tariff rates,” Kostin wrote.

Goldman did caution, however, that the market’s reliance on megacap tech stocks to power the S&P 500’s spring rally, one of the strongest in five decades, makes it vulnerable to “larger-than-average drawdowns” in the near term.

“Extremely narrow breadth makes it likely that the next few months will be characterized by either a ‘catch down’ by the recent market leaders or ‘a catch up’ by recent laggards,” the Goldman team wrote.

The bank said the “catch down” outcome, in which larger stocks underperform, “would most likely be driven by a disappointing shift in the outlook for earnings.”

The “catch up” would come only if investors “embrace substantially stronger economic growth with more Fed easing than our economists’ currently forecast.”

Write to Martin Baccardax at martin.baccardax@barrons.com