Deutsche Bank Research has raised its forecast for US equities, arguing that the market has proved more resilient than expected in the wake of tariff disruptions.
Following the sharp “Liberation Day” selloff, the S&P 500 swiftly rebounded, returning by early July to what analysts described as the “very robust uptrend channel” that has been in place for three years.
The bank now expects the benchmark index to end 2025 at 7,000, up from its prior target of 6,550.
The key question for investors, Deutsche Bank strategists wrote, is whether this strength is justified or whether “significant negative effects of tariffs are yet to come.”
So far, they noted, the consensus has repeatedly expected a slowdown in growth that has not materialized.
GDP trackers for the third quarter continue to point to expansion above trend, at roughly 3%. This pattern, they argued, is reminiscent of 2022 to 2023, when “a forecast recession was repeatedly rolled forward for nearly two years,” resulting in a long stretch of positive surprises.
Corporate earnings have also held up better than anticipated. S&P 500 earnings growth accelerated to 10% in the second quarter, broadly consistent with typical non-recessionary performance.
Deutsche Bank highlighted that while mega-cap growth and technology drove the bulk of the increase, the drag from tariffs and weaker oil prices was less severe than feared.
“The hit from tariffs so far is modest and likely to remain manageable,” the bank wrote, citing corporate commentary that firms are leaning on pricing power and operational adjustments rather than passing through large shocks to consumers.
On inflation, the strategists estimated that “half the direct impact of tariffs has already been seen in core goods prices.”
While they expect some further upward pressure, the magnitude should be modest compared to 2021 to 2022 and likely perceived by markets as temporary.
The stronger earnings backdrop has prompted Deutsche Bank to raise its S&P 500 earnings-per-share estimate for 2025 from $267 to $277, with 2026 seen at $315.
That implies earnings growth of 9.5% next year and nearly 14% the following year.
The analysts also expect valuations to remain elevated by historical standards, citing persistently higher payout ratios and investor perceptions of more durable profit growth.
Positioning remains a source of potential upside, the bank added. Although systematic strategies have tilted overweight, discretionary investors have been “hugging neutral” since July.
If fundamentals continue to hold up, a rotation toward greater equity exposure could fuel further gains.
In terms of strategy, Deutsche Bank is keeping a cyclical bias. The firm remains overweight financials and consumer cyclicals, has turned overweight industrials amid signs of a manufacturing rebound, and stays underweight defensive sectors such as utilities and consumer staples.
Regionally, the bank is overweight the US and Europe while underweight Japan.
Overall, the bank’s demand-supply framework points to roughly 8% upside for US equities by year-end, a move that would keep the S&P 500 at the bottom of its current recovery channel but consistent with the broader uptrend in place since the global financial crisis.