JPMorgan Still Expects a High S&P 500 Finish Despite a Cruel Summer

Investor sentiment has improved noticeably, with the S&P 500 gaining 6.3% over the past three trading sessions and rising 10% from its recent low on April 8. This bullish shift in mood seems largely tied to President Trump’s reassurance that he has no plans to fire Federal Reserve Chair Jerome Powell, and encouraging signals from the administration about progress in trade negotiations with countries like South Korea, Japan, and India. These agreements could potentially serve as models for deals with other nations, giving investors a sense of momentum in trade diplomacy.

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There’s even been a slight softening in Washington’s tone toward China on trade—though less so from Beijing. All these developments have given Wall Street reason to breathe a little easier. JPMorgan’s global equity team, led by Dubravko Lakos-Bujas, explained in a recent note that this upward momentum reflects a “pain trade” scenario—essentially, many traders were caught off guard and poorly positioned for the rally, forcing them to quickly shift their strategies as sentiment improved.

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However, JPMorgan cautions against overexuberance. While the recent gains are encouraging, the team emphasized that more decisive clarity on tariffs is essential to prevent deeper disruption to the broader economic cycle. As the summer months approach, they warn that activity could weaken due to companies rushing to import goods ahead of expected tariff hikes (a phenomenon known as front-loading), the delayed impact of previous policy measures, and a slowdown in business investment.

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Another concern is that during the current earnings season, many companies may offer more conservative forecasts, which could prompt analysts to lower their expectations for second-quarter results. That could weigh on sentiment moving forward.

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JPMorgan also highlighted the persistent trend of foreign investors pulling capital out of U.S. markets—a result of uncertainty surrounding Trump’s trade policies and the weakening dollar. This makes it less likely that the S&P 500 will return anytime soon to its previously high price-to-earnings ratios of 22 to 24 times earnings seen in recent quarters.

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Despite these challenges, JPMorgan acknowledges that U.S. stocks will probably continue to trade at a premium compared to international markets. The firm views a valuation cap of around 20 times earnings as reasonable, given the strengths of U.S. companies.

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These include high-quality earnings, strong pricing power, solid profit margins, and the ability to reinvest in growth areas—particularly artificial intelligence, which continues to develop behind the scenes—as well as returning capital to shareholders.

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Based on this outlook, the S&P 500 might revisit JPMorgan’s base-case projection of 5,200, supported by anticipated earnings per share of $250 in 2025 and $280 in 2026.

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There’s also some more optimistic news in the near term. JPMorgan expects this earnings season to bring a surge in stock buybacks as companies take advantage of the recent market dip to repurchase shares at attractive prices. Other supportive elements include falling energy prices, a softening dollar, and a potentially more accommodative monetary policy, all of which could further boost equities.

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Looking further ahead, JPMorgan believes that as trade tensions ease in the second half of the year, investor focus could shift to policy initiatives more favorable to stocks, such as tax cuts and deregulation. These factors are expected to create a more constructive environment that supports stronger economic growth by 2026.

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Under this more bullish scenario, the S&P 500 could climb toward JPMorgan’s upper-end forecast of 5,800 by the end of 2025, based on projected earnings per share of $260 this year and $290 in 2026. That outlook assumes continued progress in earnings, a favorable policy backdrop, and improved investor sentiment.

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Meanwhile, broader market indicators are showing mixed signals. U.S. stock-index futures have turned uneven, with the S&P 500, Dow, and Nasdaq futures trading in a narrow range. Benchmark Treasury yields are holding steady, with the 10-year yield hovering around 4.29%. The dollar index is slightly higher, indicating a modest uptick in the greenback’s value. Oil prices have edged lower, and gold has declined, with the precious metal trading down to approximately $3,315 per ounce.

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Overall, while recent market gains have given investors cause for optimism, there are still several headwinds to navigate before a sustained bull run can take hold. The next few months will be critical in determining whether momentum can continue—or if uncertainty will once again take center stage.

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