Just a few months into 2025, the significant drop in the US stock market has led some top forecasting agencies on Wall Street to drastically lower their optimistic expectations for the S&P 500 Index.

In just the past week, at least two major institutions on Wall Street have revised their year-end targets for the S&P 500 Index. Trump's constantly changing tariff plans and retaliatory measures from trade partners have raised concerns about an escalation of the global trade war, which has brought immense shock to the financial markets.

On Wednesday, Goldman Sachs strategists lowered their year-end forecast for the S&P 500 Index from the previous 6500 points to 6200 points. The investment bank's economic team has also recently downgraded its forecast for the USA's GDP in 2025, as the impact of tariffs and political uncertainty cast a shadow over the prospects of the world's largest economy.

A day later, one of Wall Street's most famous bulls, Yardeni Research, also sounded the alarm, reducing its target price for the S&P 500 Index in the "best case" from 7000 points to 6400 points, citing the stagflation effects that may come with Trump's second term.

According to a recent survey by Market Watch of Wall Street investment banks and research institutions (see table below), the revised expectations set Wall Street's average year-end target for the S&P 500 Index at 6607 points, indicating an increase of over 17% compared to last Friday's close at 5638.94 points. The average target going into 2025 was about 6667 points.

This cautious attitude on Wall Street stands in stark contrast to the end of last year, when strategists largely expected that after two years of strong and unexpectedly high gains, the US stock market would continue to rise rapidly in 2025.

According to FactSet, as of last Friday, the S&P 500 Index has fallen by 4.2% since the beginning of 2025, the Dow Jones has dropped by 2.5%, and the Nasdaq has decreased by 8.1%.

Wall Street originally hoped for the "growth-promoting" strategy of the Trump administration, which aimed to strengthen the USA economy and corporations through tax cuts and loosening financial regulations. However, so far, the Trump administration has issued little specific policy in these areas, focusing mainly on tariffs, immigration restrictions, and reducing the size of the federal government.

Other Banks and research Institutions, while not in a hurry to adjust their official year-end predictions for the S&P 500 Index, have also started to adopt a less optimistic attitude in their forecasts.

Lori Calvasina from Royal Bank of Canada Capital Markets stated last Tuesday that she maintains her year-end target of 6,600 points for the S&P 500 Index for 2025, but she believes the likelihood of the stock market falling by 14% to 20% is increasing, "which could lead us to shift toward a bear market expectation of 5,775 points by the end of 2025," she mentioned in a client report.

However, Calvasina added that there is currently "not enough evidence to shift towards this expectation," stating that "we are still in an exploratory phase and believe the USA stock market is at a critical juncture."

Meanwhile, the team of strategists at JPMorgan led by Dubravko Lakos-Bujas maintains a year-end target of 6,500 points, but they recently wrote that "this prediction has a large standard error, and the S&P 500 Index may not reach this level until 2026." Citigroup also joined the cautious camp earlier this week, downgrading the rating of USA Stocks from Buy, which it had maintained since October 2023, to Neutral.

It is certain that over the past week, individual investors' bearish sentiment towards the short-term outlook of USA Stocks has continued to rise – this is a contrarian indicator and may suggest that the sell-off has bottomed out. Investors will now need to weigh whether the sentiment shift of some of Wall Street's most famous bulls and bears is significant.

Michael Kantrowitz, chief investment strategist and portfolio strategy head at Piper Sandler, stated last Friday that Wall Street's consensus target for the S&P 500 Index typically lags the market by about three months, or 60 trading days.

Greg Halter, research director at Carnegie Investment Counsel, said, "It seems that major forecasting institutions on Wall Street are always behind the curve, especially when markets are rapidly rising and falling. The S&P 500 Index has undergone a pullback, so I think strategist do not want to set targets too far from current levels unless they really want to indicate a very bullish or bearish outlook on the market."

One of the most commonly used methods by Wall Street strategists to calculate the S&P 500 Index target is to multiply the expected EPS for the next 12 months by its expected PE.

However, Hahrte mentioned on the phone last Friday that although Wall Street's expected EPS 'usually comes close to the actual outcome', there is a significant disparity in the expected PE, which could have a major impact on the target price of the S&P 500 Index. He stated that many forecasts are based on 'the subjectivity of the expected PE used by strategists, which is an important factor in determining and may not be very accurate.'

So far in 2025, Wall Street's expectations for corporate earnings have not changed significantly. According to Factset data, Wall Street now expects the S&P 500 Index's annual EPS to be $271.05, down from $274.19 at the beginning of January. As of last Friday afternoon, the index's expected PE for the next 12 months is 19.9 times, lower than the 21.6 times on January 10.