Could Trump’s Tariff Reprieve for China Reset S&P 500 Forecasts for 2025?

The announcement of a 90-day reprieve from the steep tariffs between the United States and China has helped to provide an immediate boost to markets.

Monday, 12th May, saw both nations climb down from three-figure tariffs imposed in April, with the US committing to cut its 145% levies on Chinese imports to 30%, while China claimed that it would be cutting US import duties from 125% to 10%.

Markets have been heavily impacted by the uncertainty surrounding the US strategy of announcing reciprocal tariffs on scores of trading partners. Although the de-escalation with China, like Trump’s ‘Liberation Day’ tariffs, is subject to a 90-day delay, optimism is sweeping through Wall Street that a trade crisis can be averted.

Crucially, the S&P 500 index, which has been subjected to consistently lower end-of-year forecasts throughout 2025, rallied 3.3% off the back of the news. Likewise, the Dow Jones Industrial Average grew 2.8%, while the Nasdaq Composite led the way by posting 4.3% growth.

Brightening Prospects on Wall Street

While Goldman Sachs analysts had lowered their expectations for the S&P 500 to 6,200 in the weeks before Trump’s Liberation Day tariffs, the wave of positive market sentiment on Wall Street has already prompted a team led by David Kostin to push their forecasts for the next 12 months up to 6,500—implying an approximate 11% gain on today’s rates.

With a three-month target positioned at 5,900, Goldman Sachs appears to remain cautiously optimistic for the outcome of Trump’s 90-day tariff delay, but forecasts for growth are a positive reversion from the more bearish outlook for US markets just a matter of weeks ago.

Emphasizing the rapid turnaround in market optimism, we only have to look to the Economy Forecast Agency’s expectations for the S&P 500 in April, which saw a forecasted close of 4,379 by the end of 2025, a drop of 13.2%.

Inflation Returns to Center Stage

In a macroeconomic landscape where trade uncertainty is cooling, we’re likely to see the S&P 500 become increasingly susceptible to inflation data.

This will make CPI releases more critical in the management of market growth, while the prospect of stagflation could be a leading cause for concern among investors.

The Federal Reserve has already announced its third consecutive pause on interest rates, but Chair Jerome Powell has claimed that “it’s really not at all clear what it is we should do” when looking further into the future.

Powell’s concerns appear to stem from long-term inflation concerns rather than the prospect of market growth, highlighting that the future of the S&P 500 could yet be heavily influenced by the ongoing tussle with inflation and its impact on interest rates.

The Fed Chair also pointed to data suggesting that the risks of higher inflation coupled with higher unemployment could introduce stagflation to Wall Street.

Despite this, US CPI data for April arrived lower than expected at 2.3%, representing a bullish sign for Wall Street investors.

Should US growth remain static while inflation continues to rise, it may have a significant impact on Trump’s ability to play a strong hand after his 90-day delay to the launch of his reciprocal tariffs is over. However, positive movements for inflation rates point to a more positive outlook for the stock market in the short term.

How Investors Can Navigate the S&P 500

The impact of Trump’s trade climbdown has helped many of the S&P 500’s brightest players recapture lost momentum.

One of the biggest winners from the 90-day tariff delay with China was Tesla (NASDAQ: TSLA), a stock that has plenty of exposure to trade with the Asian economy. The news saw TSLA briefly become a $1 trillion stock once again, recapturing highs that hadn’t been seen since February.

Brightening inflation data is likely to be bullish for investors in Wall Street’s more speculative stocks, and the Magnificent Seven is set to benefit from a return of confidence to US markets.

However, adopting a level of diversification is likely to be key for navigating lingering uncertainty when July arrives and President Trump faces a major decision on how to manage the end of the 90-day delay to his Liberation Day tariffs.

The Return of Cautious Optimism

After a challenging start to Trump’s second term in the White House, positive news of a delay to heavy tariffs on Chinese imports and better-than-expected inflation data point to a return of cautious optimism to the S&P 500.

With forecasts brightening, expectations are growing that the index can enjoy a positive year-end. While this will ultimately come down to Trump’s future stance on sweeping tariffs and the continued flow of positive inflation data, Wall Street is finally able to enjoy positive market movements.

Although there’s a long way to go before we can be confident of a sustained market rally, the outlook for the S&P 500 is certainly brightening.