Wall Street Banks Prepare for Volatility, Predict S&P 500 Gains up to 5%

After a tumultuous first half of the year, major investment banks on Wall Street are preparing for potential volatility in the U.S. stock market and economy during the second half of 2024. Despite a reduction in recession risks, several uncertainties remain, including the impending deadline for retaliatory tariffs, the fate of significant legislative initiatives, ongoing tensions between the administration and the Federal Reserve, and persistent geopolitical risks. The actual impact of tariffs on the U.S. economy is expected to become clearer in the coming months, with economic data likely to reflect inflationary pressures or a slowdown in consumer spending.

Morgan Stanley anticipates a more stable market in the second half of the year, with the S&P 500 index expected to reach 6,500 points by year-end, a 5% increase from current levels. The bank believes that the reduction in tariff rates has significantly lowered recession risks and that the market has already bottomed out. Increasing corporate earnings revisions are seen as a positive sign for the market. Economists at Morgan Stanley predict that the Federal Reserve will cut interest rates seven times by 2026, while market expectations are for two cuts.

JPMorgan Chase expects the U.S. economy to slow down in the second half of the year but does not foresee a recession, as concerns related to the trade war continue to dissipate. The bank predicts that interest rates will remain high for an extended period due to persistent inflation and expects the Federal Reserve to cut rates by 100 basis points between December 2024 and spring 2026, bringing the final rate to 3.5%. Despite the continued strength in earnings and the popularity of AI trading, tariffs and geopolitical risks remain significant headwinds. JPMorgan sets its year-end target for the S&P 500 index at 6,000 points.

Wells Fargo sees multiple positive factors that could drive the U.S. stock market to new highs by the end of the year. The bank believes that the market does not need to be overly concerned about the economic outlook, as inflation is moving towards normalization and regulatory easing will benefit businesses, particularly small and medium-sized enterprises. The bank also notes that U.S. energy independence has reduced the risk of oil shocks driving inflation. Wells Fargo expects the best-performing sectors to be aerospace and defense, information technology, and finance. The bank predicts that the S&P 500 index will close the year between 5,900 and 6,100 points.

Goldman Sachs Asset Management expects tariffs to continue causing market volatility and keeping the Federal Reserve cautious about rate cuts. If economic data weakens in the coming months, the bank anticipates several rate cuts later in the year, although the risk is for fewer and later cuts. The fate of the U.S. economy will largely depend on the tax legislation pushed by the administration, which could offset the negative impact of tariffs. Goldman Sachs sees opportunities in European stocks and small-cap stocks due to deregulation and favorable tax policies.

Bank of America expects the U.S. economy to remain resilient in the second half of the year as trade tensions ease. While tariffs remain a risk, the bank believes that tariff revenue will help reduce the U.S. national debt and stabilize the bond market. The bank predicts that inflation will peak at 3.1%, lower than market expectations, as companies have already stockpiled inventory. The bank does not expect the Federal Reserve to cut rates this year, as the full impact of tariffs on inflation data has not yet been realized. The bank notes that the more political pressure the Federal Reserve faces, the less likely it is to cut rates.