Our new price target reflects our belief that the stock market is on a slightly better path than the one it was on April 4th, when we cut our target for the second time in 2025, but not back to where it was in January or even mid-March when we cut our target for the first time. As a reminder, we see our price target as a navigational tool, but more of a compass than a GPS which we revise when new information becomes available, similar to how most stock analysts revise their company-level forecasts continually throughout the year.
As always, the price target itself is driven by the math of our models. Following our latest round of updates, the median outcome of the five models we used is 5,730. The range of outcomes remains wide, from roughly 5,500 to 6,400, highlighting the high degree of uncertainty persists.
We see 6,400, the output of our sentiment model, as our “bull case” if our official target ends up being too conservative. For a bear case, two thoughts come to mind. The first is that we suspect a more negative outcome in the stock market could take the S&P 500 down to the recession lows of our “third tier of fear” at some point before the year is up, which we estimate to be in the 4,200-4,500 range.
Another reasonable bear case comes from our valuation model, which suggests that the S&P 500 could end the year a little above 5,000 if inflation settles out in the low 3% range, the Fed doesn’t cut, 10 year yields end the year at 5%, and S&P 500 EPS comes in flat with 2024 levels.
