Wall Street analyst outlooks are typically bullish. If you aggregate every price target on every S&P 500 Index company and weight them to match the index, it’s exceedingly rare for the overall number to fall. The so-called “bottom-up” price target did just that in April, a good measure of how shocking President Donald Trump’s so-called Liberation Day tariffs were. The good news (potentially) is that the metric has started moving higher again. And when that happens, it’s historically a sign that the bottom is in.
The basic story seems to be that America’s tech superstars — the protagonists behind the “American exceptionalism” narrative — continue to excel, tariffs or no tariffs. On a sector basis, information technology price targets fell sharply from early April through May, but they’ve now bounced back from most of their losses, thanks no doubt to bullish earnings reports from Microsoft Corp., Nvidia Corp. and Broadcom Inc. But it’s not as if three companies are putting the entire index on their shoulders.
In fact, the target-price breadth has been relatively encouraging in the past month, with about two in three companies having seen their target prices rise. Big and needle-moving upgrades have included Intuit Inc. (the purveyor of financial management and accounting platforms), Netflix Inc. (the streaming company), Crowdstrike Holdings Inc. (cybersecurity) and Uber Technologies Inc. (ride ridesharing). That list is a reminder that America’s top companies operate in many businesses that are not particularly exposed to tariffs.
But even industrials firms, which you’d expect to be more sensitive to trade volatility, have garnered renewed Wall Street optimism. Analysts have sharply revised up price targets for the likes of Boeing Co., GE Aerospace and Deere & Co., reinforcing how their size gives them negotiating power and how there’s always more going on beyond just White House policy and macroeconomics. In the case of Boeing, new management has ramped up production to meet a massive backlog of demand from airlines, and that’s translating into optimism that GE Aerospace will be able to sell them engines. Certainly, the mood remains glum around consumer discretionary stocks (a group led by Amazon.com Inc. and Tesla Inc.), but the decomposition is a reminder that the US stock market is so big and diverse that, short of an outright recession, it won’t be easily upended by trade policy alone.
What does it all mean for investors? In general, investors should take analyst recommendations and targets seriously but not literally. Analysts are no more clairvoyant than anyone else, and their guesstimates about the macro backdrop are often downstream of the highly imperfect forecasts put out by their in-house economists and strategists. As a group, they have a well-documented bullish bias and a tendency to “chase the market” in the short-run, i.e. increase target prices of stocks that have already rallied. But they know their companies better than most of us, and the analysts are frequently influential in their own right, meaning their outlooks can become self-fulfilling prophecies.
In 21 years of data, there are only eight other instances in which the aggregate bottom-up price target declined by 3% or more (early 2025 was the ninth). In seven of them, a 1% recovery in the target price meant that the bottom was in (though the onset of Covid undid the 2019 rally). The median forward return for the S&P 500 was 4.8%, 6.5% and 15% three, six and 12 months later, respectively.
Here is a visual of how the index performed in the 250 days after the 1% recovery:
The only real exception was, ominously, May 2008. On that occasion the aggregate price target staged a 1.1% rebound over 20 trading days, sending a catastrophically false “buy” signal that would have had investors adding stocks before the worst of the financial crisis crash. That experience is a reminder that no indicator is immune to the force majeure from financial crises, pandemics and that sort of development. The current rebound has now gone farther (1.2%) but is still younger (16 days). It’s still perfectly plausible that we’ll wake up one morning and Trump will have cooked up another crazy twist in his ever-changing tariff policy and investors will yet get a much cheaper entry point than the one available to them today.
But the bullish turn in price targets is a reminder that there’s still a lot to be optimistic about when it comes to the S&P 500. And while there’s always danger in investing, investors may have even more to lose by sitting on the sidelines.
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