Investing.com — In a note on Thursday, Capital Economics raised its forecast for the S&P 500, now projecting the index to reach 7,000 by the end of 2026, citing easing trade tensions and improved market conditions.
“Despite the latest setback in the S&P 500, we are revising back up our end-2025 forecast for the index… to a lower level of 6,250 than the projection of 7,000 we had before ‘Liberation Day,’” the firm wrote. “We are also upgrading our end-2026 forecast for it, from 6,000 to 7,000.”
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The revision follows a reassessment of the economic backdrop after the temporary de-escalation of the trade war.
“The backdrop clearly looks more favourable for equities now than it did then,” analysts said, though they emphasized the situation remains fluid.
Capital Economics noted that while “reciprocal” tariffs have only been paused for 90 days, the worst of the trade war may be behind markets.
“One reason for that glass-half-full view is the guardrail of the markets, and bonds in particular,” the note said, citing the Treasury market’s influence on White House trade policy shifts.
Still, the firm stopped short of fully reinstating its pre-tariff projections for 2025, pointing to investor caution following recent volatility and broader concerns over fiscal policy.
“We suspect investors will be more cautious about piling into the stock market after the turmoil in April,” analysts wrote.
Capital Economics also highlighted uncertainties in big tech, where “the outlook remains unclear” due to emerging competitive threats from China in artificial intelligence, which extend beyond trade considerations.
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