Summary
⚈ U.S. and China reduce tariffs for 90 days, driving investor optimism.
⚈ Wall Street remains divided; Wells Fargo projects S&P 500 reaching 7,007 by year-end.
Roughly $2 trillion flowed into the U.S stock market at the open of the trading day on Monday, May 12.
The S&P 500, which closed at 5,659 on Friday, May 2, opened 2.61% higher, at 5,807. By press time, the benchmark index had further risen to 5,816, some 2.77% above Friday’s close.
Moreover, all of the Magnificent 7 stocks opened in the green, further solidifying the somewhat unexpected rally.
As bullish as the start of this week has been, it would be premature to throw caution to the wind, as numerous potential pitfalls still remain ahead.
Stock market rallies on China detente — but there could still be trouble ahead.
The key driver behind the present rally was the recent announcement that the United States will slash import duties on Chinese goods from 145% to 30%. In turn, China will drop its tariffs from 125% to 10%.
This arrangement will last for 90 days — during which the world’s two leading economies will presumably engage in talks aimed at reaching a more permanent solution.
While investors have reacted positively to the news, major Wall Street firms have already cut their S&P 500 targets for 2025 by a significant amount. Moreover, as pointed out by Goldman Sachs chief global equity strategist Peter Oppenheimer, Q1 earnings reports haven’t provided an accurate estimation of the damage caused by the trade war — and Q2 earnings could shake investor confidence going forward.
With that being said, the outlook regarding the S&P 500 on the Street is far from unanimous — Wells Fargo, for instance, has recently issued a Street-high target of 7,007, which anticipates that the index will make a 20.47% move to the upside compared to current levels by the end of the year.
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