Wall Street strategists look down on signs of economic slowdown and believe that the stock market still has room to rise in summer

The Zhitong Finance App learned that despite signs that the labor market is cooling down and economic activity is slowing down, mainstream Wall Street strategists are still optimistic about the summer stock market performance. Over the past month, many institutions maintained the target price of the S&P 500 index in the range of 6,300-6,500 points at the end of the year, believing that the most severe phase of the tariff impact may have passed. By Monday's close, the benchmark index was at 6010 points, down about 2% from its all-time high.

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Morgan Stanley Chief Investment Officer Mike Wilson pointed out in the report that the S&P 500 index experienced a deep correction of nearly 30% earlier this year, and expectations of a “moderate growth slowdown” may have been fully priced by the market. “Historical experience shows that stock market trends are often 6-12 months ahead of economic data and profit results.” Wilson emphasized. “Current stock prices reflect expectations of a weakening economy.”

Recent economic data have indeed shown signs of fatigue: ADP's private sector employment increased by only 37,000 people in May, a new low in more than two years; the number of jobless claims at the beginning of the week rose to a high level since October 2024; the March-April non-farm payroll data was revised down 95,000 jobs from the initial value. However, Goldman Sachs chief US stock strategist David Costin pointed out that this slowdown has long been anticipated.

However, the slowdown in these data is already within general expectations. The Goldman Sachs stock research team analyzed past “event-driven recessions” (such as the bursting of the internet bubble and interest rate shock in the 70s). The Goldman Sachs team, led by chief US stock strategist David Costin, found that so-called soft economy data (covering data points such as consumer surveys) often bottomed out before hard economic data (such as monthly inflation data or new employment data) bottomed out.

And this situation has continued to unfold over the past month. In May, the World Federation of Large Enterprises Future Expectations Index recorded its biggest monthly increase since May 2009. However, in the data released on Monday, inflation expectations in the monthly survey of the Federal Reserve Bank of New York fell for the first time this year in May, which probably means that the most serious concerns about inflation caused by tariffs have gradually subsided.

Costin's research shows that even if hard economic data such as monthly employment reports continue to decline, the S&P 500 usually rises in response to soft data feedback.

Costin wrote, “Currently, S&P 500 returns are more correlated with soft data than hard data.” He predicts that the S&P 500 will reach 6,500 points in the next 12 months. “If the recovery trend of soft data continues, then even if the hard data performance is weak, it should be able to support the return of the stock market.”

Scott Cronart, head of US stock strategy at Citibank, recently raised the S&P 500 target price from 5,800 points to 6,300 points. The core logic is that after China and the US suspended the imposition of tariffs, trade uncertainty subsided significantly. The team's monitoring shows that the US economic growth rate forecast fell to an annual low of 1.35% in early May, but with the easing of tariff risks, the market's consensus forecast for the 2025 economic growth rate has now rebounded to 1.4%.

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Although acknowledging that rising interest rates and high valuations pose potential risks, strategists such as Cronart believe that as long as the economic slowdown does not exceed expectations, the growth sector represented by large technology stocks will still have allocation value.” The AI theme has regained financial attention, and our preferences for growth stocks remain the same,” he wrote. Goldman Sachs Costin's team also pointed out that historical rules show that even if hard data continues to weaken, as long as soft data continues to improve, the stock market can still be supported.

Various agencies have unanimously emphasized that if core economic indicators such as employment and consumption deteriorate beyond expectations in the future, market logic may change. However, as of now, the dual support of easing trade frictions and a recovery in soft data is becoming an important basis for strategists to stick to their optimistic expectations.