Goldman Sachs Raises S&P 500 Target 5% to 6,500 After U.S.-China Tariff Deal

Goldman Sachs has abruptly raised its one-year target for the S&P 500 from 6,200 to a new record high of 6,500, following an agreement between the U.S. and China to reduce tariffs by 115 percentage points. This significant reduction in tariffs, which will take effect over a 90-day period, is expected to lower tariff rates, improve economic growth, and decrease the risk of a recession. The U.S. will reduce its tariffs on Chinese imports from 145% to 30%, while China will lower its tariffs on U.S. goods from 125% to 10%.

According to a team led by chief US equity strategist David Kostin, the stock market index will rally about 11% from current levels after the White House announced an initial trade deal with China that massively reduces tariffs on both sides. The agreement between the two economic powerhouses has allayed recession risks and market uncertainty. The S&P 500 is trading at 5,886 as of Tuesday’s close.

While Kostin’s team remains bullish on the stock market over the long term, Goldman strategists believe the recent S&P 500 rally may soon lose steam after hitting their three-month target of 5,900. They remain cautious in the near term, warning that current conditions do not support a sustained market rebound. “Already-optimistic market pricing of the economic growth outlook as well as uncertainty surrounding the magnitude of impending slowdown in economic and earnings growth will likely keep a ceiling on equity multiples during the next few months.”

The agreement has been met with optimism in the market, with stocks closing mostly higher. The tech-heavy Nasdaq Composite added 1.6%, while the Dow Jones Industrial Average slipped 0.6% due to an 18% drop in shares of UnitedHealth Group, which suspended its full-year outlook and announced the departure of its CEO. The market rally was further boosted by milder-than-expected inflation data, with the Consumer Price Index rising at an annual rate of 2.3% in April, the lowest level of 12-month inflation since early 2021.

Mega-cap technology stocks, which were among the biggest gainers, surged again. Nvidia and Broadcom were up nearly 6% and 5%, respectively, while Tesla and Meta Platforms added about 5% and 3%. Amazon, Apple, and Alphabet also gained ground, while Microsoft closed fractionally lower. Other notable tech movers included Palantir, which rose 8%, and Super Micro Computer, which jumped 16%.

The agreement between the U.S. and China to reduce tariffs has also had an impact on other sectors. Honda Motor's U.S.-listed shares tumbled after the Japanese automaker warned of a significant drop in profit due to uncertainty over new U.S. tariffs. The company expects net profit to slump 70% year-over-year to 250.0 billion yen for the fiscal year ending March 31, 2026. Honda's Director, President, and Representative Executive Officer Toshihiro Mibe said that the tariffs would have a negative impact of JPY650 billion in the current fiscal year and that the company was already looking at ways to respond.

The reduction in tariffs is expected to have a positive impact on the economy and corporate profits, which could lead to further gains in the stock market. However, it remains to be seen how the agreement will play out in the coming months and whether it will lead to a sustained rally in the market. The market's reaction to the agreement highlights the potential for economic growth and reduced uncertainty, but caution is advised as the near-term outlook remains uncertain.