Goldman Sachs Upgrades S&P 500 Forecasts Amid Fed Easing and Mega-Cap Momentum

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Summary:

Goldman Sachs has boosted its S&P 500 return projections for the next 3, 6, and 12 months, citing early Federal Reserve rate cuts, falling bond yields, and the continued strength of large-cap stocks...

Goldman Sachs Sees S&P 500 Climbing to 6,900 in 12 Months as Fed Pivot and Mega-Caps Drive Rally

In a decisive shift in market outlook, Goldman Sachs has raised its S&P 500 return forecasts across all near-term horizons, forecasting a 3% gain over three months, a 6% rise over six months, and a substantial 11% gain over the next year. The firm now expects the index to reach 6,400 in three months, 6,600 by year-end, and 6,900 over 12 months, buoyed by macroeconomic support and large-cap resilience.

A key factor underpinning Goldman’s optimism is the anticipation of earlier and deeper interest rate cuts from the Federal Reserve than previously projected. The bank believes that lower bond yields will help sustain elevated valuations for equities, particularly those of dominant large-cap firms.

The bank revised its forward price-to-earnings (P/E) forecast for the S&P 500 to 22 times earnings, up from a prior estimate of 20.4. This re-rating reflects investor confidence in forward earnings despite what Goldman acknowledges will likely be "near-term earnings weakness."

Large-Cap Strength Shields Market from Tariff Shock

While April’s equity market turbulence driven by President Trump’s “Liberation Day” tariff threats sparked a brief sell-off, Goldman now sees the market stabilizing. The firm's analysts point to signs that inflationary pressure from tariffs has been less severe than initially feared, as recent inflation data and corporate surveys show limited pass-through of higher import costs to consumers.

Furthermore, they highlight that many large-cap firms have absorbed shocks using existing inventory, giving them a temporary cushion as new tariff rates begin to take effect.

Stable EPS Growth Outlook, but Risks Remain

Despite tariff-related uncertainty, Goldman maintained its earnings-per-share (EPS) growth estimates for the S&P 500 at 7% for both 2025 and 2026. However, it warns of potential volatility in either direction depending on second-quarter earnings results and global macro conditions.

As the earnings season begins this week with Delta Air Lines set to report first analysts will watch closely for early signs of how U.S. corporations are handling policy uncertainty, supply chain stress, and evolving consumer demand.

Rate Cuts and Resilient Earnings Fuel Long-Term Optimism

Goldman Sachs’ upgraded outlook reflects broader market sentiment that monetary policy is once again aligning with equity market needs. The combined effect of easing rates, subdued inflation pressure, and the structural dominance of U.S. mega-cap firms has created conditions for a sustained bull market albeit one still subject to geopolitical and earnings season surprises.

Investors are now looking ahead to the Fed’s meeting minutes and subsequent statements for confirmation of the dovish pivot that Goldman’s new models are betting on. The S&P 500's current rally could continue if both rate cuts and corporate earnings meet expectations in the second half of 2025.

Source: Reuters

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Economic

China–U.S. Trade War

Bessent's Diplomatic Sprint: U.S. and China Scramble to Stabilize Trade Ties Before Deadline

With President Trump’s tariff warnings looming over a growing list of nations, U.S. Treasury Secretary Scott Bessent is racing to keep trade lines open with Washington’s largest rival China. In a Monday interview with CNBC, Bessent confirmed that he is set to meet his Chinese counterpart “in the next couple of weeks,” with the hope of expanding the fragile trade truce reached earlier this year.

While he did not name the Chinese official, Bessent has previously negotiated with Vice Premier He Lifeng, who led Beijing’s delegation during recent talks in London. Those talks culminated in a preliminary agreement: China agreed to relax export restrictions on rare earth minerals critical for U.S. industries from semiconductors to clean energy in exchange for the U.S. lifting some trade barriers.

This dialogue came after months of tit-for-tat tariff escalations between the two nations, rattling markets and raising fears of a deeper global slowdown. The April tariffs, which have since been paused, are now set to return or intensify on August 1 if no deal is reached.

Rare Earth Minerals: The Leverage at Play

Although the truce led to some progress, Bessent recently acknowledged that rare earth mineral flows have yet to return to pre-tariff levels. The ongoing disruption continues to affect U.S. manufacturing sectors reliant on these critical inputs. Their strategic significance has elevated rare earths to a central point of leverage in the negotiations.

TikTok Tensions and Cross-Issue Bargaining

Trade is not the only issue on the table. The U.S. push to force the divestiture of TikTok’s U.S. operations from its Chinese parent company ByteDance has complicated the economic dialogue. Trump has claimed a potential buyer is in place an investment group comprising Oracle, Blackstone, and Andreessen Horowitz but any final deal would require Chinese regulatory approval.

This gives Beijing a new bargaining chip. By leveraging TikTok’s divestiture, China may seek further concessions from Washington, possibly delaying or diluting the looming tariffs. Fentanyl trafficking is another contentious topic likely to surface during the upcoming meetings, with Trump linking trade and public health concerns in a broader geopolitical calculus.

What’s Next: Strategic Pressure and Political Optics

While Bessent emphasized mutual respect in past meetings in Geneva and London, the political clock is ticking. Trump’s letters to 14 countries this week set August 1 as a hard tariff deadline albeit one he later described as “firm, but not 100% firm.” The door is clearly open for deals.

The U.S.–China economic relationship, though turbulent, remains a cornerstone of global trade. Bessent’s upcoming talks signal the administration’s willingness to pursue diplomacy but only if it can extract favorable terms in return.

Whether the discussions produce a substantive agreement or simply delay further escalation remains uncertain. Yet as investors, manufacturers, and foreign governments watch closely, one thing is clear: the next few weeks could redefine not only the U.S.–China trade dynamic but also the broader architecture of global commerce.

Source: Bloomberg

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Commodity

China–U.S. Trade War

Trump’s Tariff Blitz Marks a Turning Point in Global Trade Pressure

On Monday, President Donald Trump intensified his administration’s trade offensive by sending formal letters to the leaders of 14 nations, warning of steep new tariffs set to begin on August 1. This move signaled a broad escalation of Trump’s “reciprocal” tariff framework initially introduced in April. The White House sought to balance aggression with diplomacy, with Trump also signing an executive order pushing the implementation date from July 9 to August 1 for all countries except China.

Among the first recipients of the letters were Japan and South Korea, both of which now face 25% tariffs. Other nations such as Malaysia, Kazakhstan, South Africa, Myanmar, and Laos were told to expect rates as high as 40%. Later in the day, additional letters went out to Tunisia, Bosnia and Herzegovina, Indonesia, Bangladesh, Serbia, Cambodia, and Thailand, pushing the total to 14 countries in just one day.

Despite the scope and scale, Trump told reporters the deadline was “firm, but not 100% firm,” suggesting flexibility if countries respond with negotiation proposals. The president insisted that the tariffs were in response to persistent trade deficits and what he described as “anti-American” economic policies that disadvantage US exporters.

Asia Reacts: Mixed Signals from Japan and South Korea

Japan's Prime Minister Shigeru Ishiba reacted with strong concern, expressing “deep regret” and convening a cabinet task force to manage the fallout. He emphasized that Tokyo would push for a mutually beneficial bilateral agreement. South Korea’s government echoed similar sentiments, promising to monitor market conditions closely and threatening bold contingency measures if volatility spikes.

While these countries have significant economic leverage, many of the others despite smaller trade volumes play crucial roles in specific sectors. For example, South Africa supplies nearly half of the US's imported platinum, Malaysia ranks second in semiconductor supply to the US, and Bangladesh, Cambodia, and Indonesia are major apparel manufacturing hubs.

Price Shock Looms for US Consumers

The new tariffs could significantly raise import costs for goods central to the US economy. Cars, semiconductors, machinery, and pharmaceuticals from Japan and South Korea together accounting for $280 billion in US imports last year may see price increases passed along to American consumers. Apparel and accessories from lower-income Asian countries could also become more expensive, impacting retailers and inflation metrics.

Although Trump stated the tariffs would not be stacked on top of existing sectoral duties (e.g., the current 25% on autos), investors are concerned about the potential for escalation. Each letter included language warning of further increases if any retaliatory tariffs are introduced by the recipient countries.

Wall Street Reacts Sharply: Worst Day in Weeks

Financial markets recoiled in response to the tariff announcements. Auto-related stocks were hit especially hard, with US-listed shares of Toyota falling 4%, Nissan down 7.16%, and Honda off 3.86%. These losses reflect investor fears that the automotive sector may become a direct target for further retaliatory action.

The Dow Jones Industrial Average closed 422 points lower, or 0.94%. The S&P 500 shed 0.79%, while the Nasdaq Composite dropped 0.92%, marking the worst day for all three indices in roughly three weeks.

While Asian equities opened flat on Tuesday, the specter of further tariff announcements and retaliatory measures could inject volatility into markets in the days ahead.

Uncertain but Negotiable

Trump's letters emphasized that the tariff rates may be “modified, upward or downward, depending on our relationship.” This language signals a transactional and bilateral approach to trade realignment, where countries willing to accommodate US trade priorities might be granted exemptions or reductions.

Still, with only two successful agreements finalized Vietnam and the United Kingdom since the original April rollout, the road to resolution looks narrow and complex.

As the global economy teeters between recovery and fragility, these new developments add layers of uncertainty to trade flows, corporate margins, and geopolitical alignments. While Trump’s administration appears open to talks, markets will remain on edge until concrete resolutions replace rhetoric.

Source: CNN

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Economic

Global Markets Absorb Tariff Threat With Cautious Optimism

Financial markets digested the latest round of US tariff threats with surprising composure. President Donald Trump’s decision to send letters to 14 nations, including key allies Japan and South Korea, outlining 25% tariffs on imports triggered only a mild reaction across equity markets. This tempered response reflects investor expectations that further adjustments or concessions could still emerge before the August 1 deadline.

Asian markets opened cautiously but soon found footing. Japan’s Nikkei 225, after an initial dip, reversed higher by 0.4% as investors took comfort in Trump’s comments that the tariff deadline was "firm, but not 100% firm." South Korea’s KOSPI led regional gains, jumping 1.5%, while the broader MSCI Asia-Pacific ex-Japan index rose 0.2%.

According to Tapas Strickland of National Australia Bank, markets remain on alert for headline volatility, but many participants have become more skeptical of initial tariff declarations given Trump’s history of abrupt policy reversals. The relatively muted sell-off suggests traders are waiting for clarity, not pricing in immediate economic disruption.

Dollar Gains, Yen Weakens on Safe-Haven Recalibration

The US dollar firmed against major currencies, rising 0.2% to 146.36 yen and marking a two-week high. The yen’s weakness stems partly from Japan’s direct exposure to US tariffs, as well as diminished safe-haven flows amid a calm equity backdrop. The euro held flat at $1.1741, while the Australian dollar rose 0.4% to $0.6516 in anticipation of a widely expected rate cut from the Reserve Bank of Australia later in the day.

Currency markets appear to reflect a cautious rotation, with the dollar regaining some strength as traders reassess risk in light of tariff extensions and ongoing negotiations. Japan’s Prime Minister Shigeru Ishiba described the tariff escalation as “deeply regrettable” but affirmed that discussions with Washington would continue.

Oil Prices Ease After Monday Rally

Oil prices pulled back slightly after a strong start to the week. US crude fell 0.5% to $67.59 a barrel after a 2% jump on Monday, as traders weighed the impact of tariffs on demand against strong US travel data and a recent OPEC+ production increase. Investors remain watchful of how potential global trade disruptions could affect fuel consumption, particularly in Asia.

In Europe, early futures trading indicated a modestly softer open. Euro Stoxx 50 and German DAX futures slipped 0.1%, while FTSE 100 futures dropped 0.3%. Despite the general calm, Europe’s positioning remains fluid. EU sources confirmed that the bloc has not received a US tariff letter and is continuing trade discussions, with hopes of a deal as early as Wednesday. A “good exchange” between Trump and European Commission President Ursula von der Leyen has helped calm fears of imminent escalation.

The subdued reaction across global markets to Trump’s new tariff threats suggests that investors are increasingly viewing his announcements as opening bids in extended negotiations rather than definitive economic shocks. While the August 1 deadline looms, the potential for revised terms, temporary exemptions, or further diplomacy has kept risk appetite intact—for now. As more letters and updates emerge, the market’s resilience will be tested, but for the moment, the prevailing tone remains one of watchful patience rather than panic.

Source: Yahoo Finance

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Commodity

Tariff Fears and Supply Jump Pressure Crude Markets

Oil futures retreated slightly in early Tuesday trading, giving back gains from the prior session amid rising geopolitical and supply-side uncertainties. Brent crude slipped 21 cents to $69.37 a barrel, while US West Texas Intermediate (WTI) crude fell 24 cents to $67.69. The decline follows a nearly 2% gain on Monday, as markets now recalibrate around fresh developments on trade and production fronts.

US President Donald Trump’s tariff threats set to take effect August 1 against countries including Japan, South Korea, Thailand, and others have reignited fears of a global slowdown that could dampen energy demand. While the tariffs offer a grace period for negotiations, the scope and scale of the proposed levies inject volatility into demand forecasts for the second half of 2025.

Market participants remain cautious as trade tensions increase the likelihood of downstream disruptions across key crude-importing economies. Given oil’s sensitivity to macroeconomic expectations, any perceived contraction in global industrial activity could lead to weaker energy consumption.

OPEC+ Supply Surge Tests Market Resilience

Adding to bearish sentiment, OPEC and its allies (OPEC+) announced a production increase of 548,000 barrels per day (bpd) for August well above the 411,000-bpd hikes implemented over the previous three months. The move reflects a deliberate unwinding of the group’s earlier 2.2 million bpd in voluntary cuts.

Goldman Sachs expects a final 550,000-bpd increase to be announced for September, potentially ending the coordinated supply-tightening cycle. However, actual production gains have fallen short of target levels, with most of the incremental supply attributed to Saudi Arabia. The shortfall from other members tempers the full bearish implications but still adds to overall market supply expectations.

The OPEC+ decision has introduced a structural change in supply outlooks. While voluntary restraint helped stabilize prices earlier in the year, the group’s willingness to ramp up output in a politically tense environment could pressure prices further if demand softens under global trade headwinds.

US Demand Remains a Supportive Counterweight

Despite global uncertainties, US consumption continues to show resilience. According to AAA, a record 72.2 million Americans were projected to travel over the July 4 holiday period boosting fuel demand and helping support crude prices.

Investor sentiment heading into the holiday was upbeat, with Commodity Futures Trading Commission data showing that money managers raised net-long positions in crude oil futures and options through July 1. This bullish positioning suggests that some traders expect demand to hold steady or even rise in the near term, particularly within the US market.

Mixed Signals Keep Oil in a Holding Pattern

Oil markets remain in a delicate balance as geopolitical risk and supply increases weigh against strong seasonal demand. The combination of Trump’s tariff escalation and OPEC+’s robust output hike creates a bearish overhang, but persistent US consumption offers some cushion against steep declines.

Until there is greater clarity on the impact of tariffs and the pace of actual OPEC+ output realization, oil is likely to trade within a volatile, sentiment-driven range. Traders will closely watch the next OPEC+ meeting on August 3 and the evolving US trade negotiations for directional cues heading into the second half of the year.

Source: Reuters

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Daily News

[Quick Facts]

1. US plans to extend suspension period for so-called reciprocal tariffs

2. Trump sends letters to 14 countries regarding the latest tariffs

3. The EU is striving to reach a framework trade agreement with the US this week

4. Russia's crude oil production in June widened the gap with OPEC+ quotas, with production discipline significantly improving

5. Trump: Open to lifting sanctions on Iran at the right time

6. The US has proposed a 10% tariff agreement to the EU, but with conditions attached

7. Japan and South Korea become Trump's first targets for unilateral tariffs, with both countries facing a 25% tariff rate starting in August

[News Details]

US plans to extend suspension period for so-called reciprocal tariffs

The White House Press Secretary, Leavitt, confirmed during a routine press briefing on July 7th that U.S. President Trump intends to sign an executive order extending the so-called "reciprocal tariffs" suspension for an additional 90 days, delaying the implementation from July 9th to August 1st. On the same day, Trump publicly posted letters on his social media platform, "Real Social," addressed to leaders of 13 countries regarding tariff increases, announcing that starting August 1st, imports from Japan, South Korea, Malaysia, Kazakhstan, South Africa, Laos, Myanmar, Indonesia, Bosnia and Herzegovina, Bangladesh, Serbia, Cambodia, and Thailand will be subject to tariffs ranging from 25% to 40%. On April 2nd, Trump announced the imposition of these "reciprocal tariffs," triggering a sharp decline in U.S. financial markets. Under mounting pressure, he subsequently announced on April 9th a 90-day suspension of high tariffs on certain trade partners, maintaining a baseline tariff rate of 10%.

Trump sends letters to 14 countries regarding the latest tariffs

Starting from the early hours of July 8th Beijing time, Trump has consecutively announced via social media the issuance of tariff notices directed at multiple nations, issuing updated tariff rate threats to 14 countries. Japan, South Korea, Kazakhstan, Malaysia, and Tunisia face proposed tariffs of 25%; South Africa and Bosnia are targeted with 30% tariffs; Indonesia at 32%; Bangladesh and Serbia at 35%; Thailand and Cambodia at 36%; and Laos and Myanmar at 40%. These tariffs are scheduled to take effect on August 1st.

The EU is striving to reach a framework trade agreement with the US this week

The EU is seeking to reach a preliminary trade agreement with the US this week, aiming to secure a 10% tariff rate beyond the August 1st deadline while negotiating a long-term accord. Sources indicate that the EU is advocating for the exclusion of certain critical commodities from the tariff, including aircraft, aircraft components, wine, and spirits. The tentative agreement is expected to include some form of tariff exemption or reduction. The European Commission, responsible for EU trade affairs, briefed member states on the negotiation progress on Monday. A Commission spokesperson declined to comment on the ongoing negotiations.

Russia's crude oil production in June widened the gap with OPEC+ quotas, with production discipline significantly improving

Data indicates that Russia's average daily crude oil production in June was 9.022 million barrels, 28,000 barrels below the country's mandated production target for the month. This represents the largest discrepancy between actual output and quota for Russia this year. As a leading member of OPEC+ alongside Saudi Arabia, Russia has shown improvement in implementing production cut agreements in recent years, having previously faced criticism for prolonged non-compliance with quotas. Statistics reveal that for most of this year, Russia's actual production has remained below the prescribed levels. This shift also underscores Russia's increased emphasis on adhering to production discipline, particularly following criticism from Saudi Arabia.

Trump: Open to lifting sanctions on Iran at the right time

U.S. President Trump stated on Monday his willingness to lift stringent sanctions against Iran at an appropriate juncture. Prior to dinner with Israeli Prime Minister Netanyahu, Trump told reporters that recent U.S. sanctions relief on Syria would facilitate its progress, and he expressed hope for similar measures toward Iran. He emphasized the desire to remove these sanctions when suitable, providing Iran an opportunity for reconstruction, as he advocates for Iran's peaceful self-renewal. Trump also announced that the U.S. has scheduled Iran negotiations, with the date and time to be disclosed on the 8th. U.S. Special Envoy for Middle East Affairs Witkoff indicated that the Iran issue conference is expected to be held around next week.

The US has proposed a 10% tariff agreement to the EU, but with conditions attached

An EU diplomat and an EU official indicated that the US has proposed an agreement to the European Union, maintaining a 10% baseline tariff on all EU goods, excluding sensitive sectors such as aerospace and spirits. The diplomats emphasized that the framework of the trade agreement remains largely a dynamic and evolving target, with any accord requiring approval from the Trump administration to proceed. Washington has not indicated any plans to exempt politically sensitive industries such as automotive, steel, aluminum, or pharmaceuticals in accordance with EU requests. However, France, Italy, and Ireland may welcome tariff exemptions for spirits and aircraft.

Japan and South Korea become Trump's first targets for unilateral tariffs, with both countries facing a 25% tariff rate starting in August

The U.S. President Donald Trump has initiated unilateral tariffs on nations that have not yet reached trade agreements with the United States, announcing a 25% tariff on imports from Japan and South Korea effective August 1. Trump previously indicated he would release a series of correspondence and trade agreements on Monday, with these two Asian countries being the primary focus. During his second term, Trump is eager to reform U.S. trade policy, which has introduced ongoing uncertainty and challenges for markets, central banks, and corporate executives worldwide. On his Truth Social platform, Trump publicly shared letters addressed to Japanese and South Korean leaders, with the announced tariff rates aligning closely with his prior statements—initially proposing a 24% tariff for Japan and 25% for South Korea in early April. Shortly thereafter, Trump announced a 90-day suspension period to facilitate negotiations, during which tariffs were temporarily reduced to 10%.

[Today's Focus]

UTC+8 12:30 RBA July Interest Rate Decision

UTC+8 13:30 RBA Governor Bullock Holds Monetary Policy Press Conference

UTC+8 22:00 ECB Governing Council Member Nagel Speaks

UTC+8 00:00 EIA Releases Monthly Short-Term Energy Outlook

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Economic

Forex

Yen Tumbles Amid Escalation in US-Asia Trade Tensions

The Japanese yen fell sharply on Tuesday as financial markets digested President Donald Trump’s latest move in his ongoing trade confrontation this time targeting key US allies. Trump announced that goods from Japan and South Korea would be subject to 25% tariffs starting August 1, sending ripples through currency and risk-sensitive asset markets.

The yen dropped nearly 1% overnight, reaching 146.44 per dollar in early Tuesday trading its weakest level in two weeks while the South Korean won also lost ground, although it later reversed slightly. The tariff announcement was not entirely unexpected but caught investors off-guard in its scope and timing, reigniting fears about global supply chain disruptions and retaliatory actions.

Currency Markets Reflect Risk-Off Sentiment

The yen’s depreciation is notable given its traditional role as a safe-haven asset during times of global uncertainty. The currency’s underperformance in response to direct trade penalties highlights a shift in investor behavior where fundamental trade risks now outweigh the yen’s protective status.

According to Carol Kong, currency strategist at the Commonwealth Bank of Australia, uncertainty around the ultimate shape of Trump’s tariff policy is likely to continue rattling sentiment. With countries uncertain about final rates or exemptions, global markets are positioned defensively, and volatility remains elevated.

South Korea and Japan have both responded diplomatically. Prime Minister Shigeru Ishiba confirmed that Japan would continue negotiations in pursuit of a mutually beneficial trade deal, while South Korea emphasized that it views the new deadline as an extension of a “grace period,” suggesting room for further dialogue.

Dollar Holds Firm, While Other Majors Stabilize

In contrast to the yen and won, other major currencies saw moderate recoveries on Tuesday. The euro rebounded 0.27% to $1.1741 after a sharp decline the previous day, while the British pound rose 0.17% to $1.3626. Both currencies were supported by expectations that the European Union may avoid inclusion in Trump’s baseline 10% tariff scheme, according to unnamed EU officials.

The US dollar index remained stable at 97.40, consolidating gains from Monday when it rose 0.5% amid renewed demand for dollar liquidity during market stress. The Australian and New Zealand dollars, which had sold off heavily at the start of the week, also clawed back some ground, rising 0.32% and 0.22%, respectively.

Monetary Policy Outlook Remains a Key Driver in Asia-Pacific

Attention now turns to the Reserve Bank of Australia, which is expected to deliver another rate cut in its latest policy decision due Tuesday. With inflation easing and business investment under pressure, analysts expect continued monetary easing into 2026. Carl Ang of MFS Investment Management forecasts a terminal rate of 3.1% as the RBA navigates persistent global and domestic headwinds.

Australia’s rate path is closely linked to global trade conditions. The country’s reliance on Asia-Pacific trade means that renewed tensions between the US and its regional partners especially China, Japan, and South Korea carry broader implications for sentiment and economic planning.

Trump’s tariff imposition on Japan and South Korea has deepened geopolitical and economic uncertainty, triggering a broad reassessment of currency risks in Asia. The yen’s drop reflects a market narrative increasingly shaped by policy shocks rather than fundamentals. As August 1 approaches, investor anxiety will remain elevated unless clearer guidance on trade exemptions and negotiations materializes. Until then, defensive positioning and heightened sensitivity to political headlines are likely to dominate market behavior.