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US President Donald Trump stepped up pressure on trading partners over tariffs on Tuesday, saying that no further extensions would be given after the new 1 August deadline, and that he will impose a 50% levy on copper imports and up to 200% on foreign drugs. Investor sentiment dipped slightly ahead of the US market open, with S&P 500 futures down 0.1%, as the White House may send out more tariff letters later today.

Current S&P 500 valuations suggest that investors have priced in a substantial de-escalation in trade frictions and geopolitical tensions, following the equity benchmark’s nearly 26% rally since its post-“Liberation Day” low three months ago. Tariff headlines in the coming days and weeks are likely to fuel volatility, especially if the Trump administration starts to unveil more details on sector-specific tariffs.

But we believe the US equity bull market still has room to run, and we expect further gains over the next 12 months.

More tariff clarity should emerge as trade talks continue. Declines in policy uncertainty have historically been positive for stocks, and we think US trade policy will move toward greater stability in the second half of the year. Decisions on sectoral tariffs and the legality of tariffs based on the International Emergency Economic Powers Act (IEEPA) may generate headlines and short-term volatility. But we expect country-specific deals and arrangements in the coming weeks, as the Trump administration fully recognizes the potential impact that highly aggressive tariffs could have on the economy and financial markets. We note that sectoral and renewed “reciprocal” tariff threats could be a way to gain negotiating leverage, and that the US would not want tariffs much higher than current levels that would ultimately reduce trade and hence tariff revenue.

The US economy will likely remain resilient. We expect a 15% effective tariff rate to slow the US economy over the next six months, with real GDP growth estimated at below 1% quarter over quarter. But we do not forecast a recession, and we expect economic expansion to recover to 1-2% quarter over quarter in 2026. The current level of job openings compared to unemployment remains healthy, and initial jobless claims remain at historically low levels. Strong US consumer balance sheets and the adaptability of global supply chains should also help cushion the blow. Additionally, the resumption of Federal Reserve policy easing later this year would be supportive of equities.

Positive earnings growth should underpin stock performance. We forecast S&P 500 earnings per share (EPS) growth of just 4% in the second quarter as the reporting season approaches, down from 9% in the first quarter and 10% last year. But we also expect the upcoming results to show the resilience of corporate profits, while some provisions in the One Big Beautiful Bill Act should boost near-term corporate cash flows. We expect quarterly earnings growth to recover to above 6% as we enter 2026, which should lift full-year earnings growth to 8% next year from 6% this year. Historically, stocks rise when earnings growth expectations are positive.

So, we expect the S&P 500 to reach 6,500 by June next year, although the journey up is likely to be accompanied by periodic volatility. We recommend phasing into equities for underallocated investors to manage near-term market swings, or structured strategies for more defensive positioning.