The S&P 500 (^GSPC -0.01%) was down by as much as 19% from its all-time high after President Donald Trump imposed sweeping tariffs on America's trading partners in April. Analysts at almost every top investment firm on Wall Street agreed the tariffs would trigger an economic slowdown, which would dent corporate earnings.
As a result, they raced to slash their 2025 price targets for the S&P 500, and some of them even predicted the index would deliver a negative return for the year. But optimism crept back onto Wall Street after Trump quickly paused some of the harsher tariffs. Plus, in another positive turn of events, a ruling by the U.S. Court of International Trade on May 28 suggested the president never had grounds to impose the tariffs at all. This decision was paused by the Federal Circuit Court of Appeals, setting the stage for a legal battle over the next month.
The S&P 500 is steadily recovering, and at least two top analysts have partly reversed their recent price target cuts. These swings can be very difficult to navigate, but history provides a very clear playbook for dealing with stock market volatility. Here's what investors should do.
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Tariffs are typically bad news for the economy and the stock market
Before we dive into where the S&P 500 might go next, let's recap what happened in April, because tariffs probably aren't going away entirely. Trump dubbed April 2 "Liberation Day," and he marked the occasion by announcing a 10% tariff on all imported goods from every country in the world. He also added a series of much higher "reciprocal tariffs" on imports from specific countries that have large trade imbalances with the U.S.
Trump paused the reciprocal tariffs for 90 days shortly after April 2 to make way for good-faith negotiations with America's trading partners, but the May 28 ruling by the U.S. Court of International Trade blocked them entirely. They were reinstated a few hours later by the Court of Appeals for the Federal Circuit, which will oversee arguments from the plaintiffs and the government in early June. In other words, there is still a chance the May 28 ruling will stand, potentially setting up an even bigger showdown in the Supreme Court.
The May 28 ruling also blocked the sweeping 10% tariffs, but even if this stands, there are other ways for the administration to reinstate them using a different justification. For example, Section 122 of the Trade Act of 1974 could give Trump the authority to impose broad tariffs of up to 15% on imported goods, but they can only remain in place for 150 days (roughly four months).
Trump is trying to achieve two main objectives with the trade levies. First, he wants to encourage companies to manufacture more of their products inside America. Second, he wants other countries to lower their trade barriers so U.S. businesses can sell their products into those markets with more freedom.
On the first point, it could take years for American companies to move their offshore production back home. Technology analyst Dan Ives from Wedbush Securities predicts Apple might need a full decade to move iPhone manufacturing to the U.S. from its facilities in China, and in the meantime, American consumers would have to suffer under the weight of tariffs, which increase the price of the goods they buy each day.
Any reduction in consumer spending would have downstream effects on businesses and supply chains all over the country, which might even lead to a recession. In that scenario, corporate earnings would take a significant hit, which is why analysts were so downbeat on the S&P 500 after April 2.
Optimism is making a comeback on Wall Street
Below is a list of top Wall Street firms and investment banks that slashed their 2025 targets for the S&P 500 on the back of the rising global trade tensions:
- Oppenheimer cut its S&P 500 target for 2025 from 7,100 to 5,950.
- Yardeni Research slashed its target from 7,000 to 6,400, and then again to 6,000.
- Goldman Sachs lowered its estimate from 6,500 to 6,200, and then to 5,700.
- RBC Capital Markets reduced its forecast from 6,600 to 5,500.
- Barclays trimmed its target from 6,600 to 5,900.
- UBS cut its estimate from 6,400 to 5,800.
- HSBC slashed its target from 6,700 to 5,600.
The S&P 500 ended 2024 at a price of 5,881, so the revised targets from Goldman Sachs, RBC Capital Markets, UBS, and HSBC implied a negative return for the index this year. But sentiment has started to turn for the better now that Trump's reciprocal tariffs are on hold, and top analysts at two firms recently increased their S&P 500 targets for this year.
In early May, David Kostin and his team at Goldman Sachs lifted their three-month price target to 5,900, and their 12-month target to 6,500. Around the same time, Ed Yardeni from Yardeni Research raised his 2025 target back to 6,500, specifically citing the rollback of Trump's tariffs.
The S&P 500 has already climbed back to 5,900 as of this writing, so it's up by a whopping 23% from its April low point. It would still have to climb by another 4% to reclaim its all-time high, but it's certainly trending in the right direction.
Here's what investors should do from here
Here's the bottom line: Market sell-offs and extreme volatility are a normal part of investing. According to Capital Group, corrections of at least 10% occur every two and a half years, on average. Crashes of 20% or more -- which is the technical threshold for a bear market -- happen every six years or so.
Investors have weathered four bear markets over the last 25 years alone, triggered by the bursting of the dot-com internet bubble in 2000, the global financial crisis in 2008, the COVID-19 pandemic in 2020, and the inflation surge in 2022. The S&P 500 went on to make new record highs every single time.
Steep sell-offs are the price investors pay for the opportunity to earn significant returns over the long run. In fact, the S&P 500 has delivered a compound annual return of 10.3% since it was established in 1957, even after accounting for every sell-off, correction, and bear market.
The lesson? Stay the course and focus on the long run. History suggests a market sell-off is more likely to be a buying opportunity than a reason to panic sell. After all, the big swings in Wall Street's price targets this year are proof that even the experts struggle to predict the short-term direction of the stock market.
