By Deutsche Bank significantly raised its year-end target for the S&P 500.
On June 3, 2025, the German banking giant lifted its forecast to 6,550, a notable increase from its previous target of 6,150.
This implies a 10% upside from Monday’s closing price.
This upward revision places Deutsche Bank as one of the more optimistic voices amid a broader wave of upgrades from other major brokerages.
The driving force behind this renewed bullishness centers on a reassessment of the impact of tariffs and a peculiar market phenomenon known as the “TACO trade.”
TACO trade shifts perception
The German bank, led by strategist Binky Chadha, made a bullish call after initially slashing S&P 500 targets due to tariffs.
A key factor in this revised outlook is the growing prevalence and perceived reliability of what Financial Times coined and later took up by Wall Street as the “TACO trade” – short for “Trump Always Chickens Out.”
This theory, which gained traction among investors, suggests that while President Trump frequently uses tariff threats as a negotiating tactic, he tends to soften or roll back these measures when faced with significant market or economic pressure.
The market has observed a pattern where initial tariff announcements cause a dip, but subsequent de-escalation or outright “relents” by the administration lead to a rebound.
Chadha, drawing on this pattern, now believes that the “tariff drag” on corporate earnings will be substantially lower than initially feared.
They estimate the impact to be only about one-third of what they had previously penciled in, significantly upgrading their 2025 EPS estimate for the S&P 500 to $267 from the earlier $240.
This reflects a belief that if negative tariff impacts do materialize, the administration will likely “relent” again, mitigating the damage.
The initial target and the tariff cloud
In April 2025, Deutsche Bank had taken a more cautious stance, actually cutting its S&P 500 target from an even higher 7,000 down to the 6,150 mark.
This initial downward revision was a direct response to the perceived negative consequences of newly announced tariffs.
The bank’s analysts had significantly lowered their S&P 500 earnings per share (EPS) estimate for 2025 from $282 to $240, anticipating a contraction in corporate profitability due to increased trade levies.
The concern was that these tariffs would disproportionately affect U.S. companies, impacting everything from import costs to export revenues and potentially dampening foreign growth.
Beyond tariffs: resilient economy and investor positioning
Beyond the TACO trade, Deutsche Bank’s optimism is further bolstered by a resilient economy and favorable investor positioning.
The S&P 500 experienced its strongest monthly gain since November 2023 in May, supported not only by a perceived softer stance on tariffs but also by robust corporate earnings and benign inflation data.
Deutsche Bank argues that increasing demand for stocks across various investor types will likely boost prices.
They note that discretionary investors are currently neutral on stocks, while systematic strategies are underweight.
This suggests ample room for overall positioning to shift to “moderately overweight,” thereby fueling further purchases.
Corporate buybacks are also expected to continue at a solid pace, indicating healthy company fundamentals and confidence.
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