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The Neutral stance reflects CIO views that the near-term risk-reward for US stocks looks more balanced now that markets are higher than 2 April levels, the day that President Trump imposed “Liberation Day” tariffs. Valuations tell a similar story, with the S&P 500’s forward P/E now higher than its five-year median.

In addition, tariffs have already been dialed back on every major trading partner as the US engages in a negotiation process. So, trade-related upside catalysts appear to be less prevalent. And it’s certainly possible that there could be a re-escalation in trade frictions during these negotiations.

Furthermore, the economy still needs to adjust to the higher tariff levels that President Trump has put in place. As a result, economic data look poised to soften in the months ahead. We don’t think this is a major source of downside risk for US equities, but it could be a modest headwind.

That said, we still think the bull market is intact and stocks can continue to move higher over the coming year. After digesting the tariff impact, economic data should begin to improve later this year driven by a pickup in real wage growth, clarity on tax policy, deregulation, and potential Fed rate cuts.

The S&P 500 performance when the VIX volatility index declines to a more normal level (<23) after spiking above 40. In seven of the eight times this has happened in the last 35 years, the S&P 500 continued to rise with an average gain of 13%. In the current episode, the VIX fell below 23 on 2 May. If stocks behave in line with the average experience, the S&P 500 could rise to over 6,400 by May 2026.

We take a slightly more conservative approach because we don’t think the Fed will embark on a powerful easing cycle like it has done in past episodes. We set our June 2026 S&P 500 price target at 6,400. We also bump up our year-end 2025 price target to 6,000 from 5,800. This change is driven by an increase in our S&P 500 EPS estimate for 2025 owing to a solid first-quarter reporting season and slightly higher expectations for GDP growth in the second half of the year on a rapid deescalation in trade frictions.

The first-quarter reporting season also demonstrated that spending on AI remains robust, with Meta slightly raising its capital spending plans for 2025. Microsoft posted much better-than-expected cloud revenue growth and confirmed that data center capital spending for its next fiscal year—starting in July—will continue to grow. Industrial and power companies that sell to data centers also reiterated the solid outlook. Continued investment spending and AI adoption is an important driver for US equities.

To recap, we think the risk-reward in US stocks is slightly more balanced in the near term. But we continue to expect gains ahead, as reflected by our June 2026 S&P 500 price target of 6,400.

Main contributors: David Lefkowitz, Nadia Lovell, Matthew Tormey

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