After the tariff drama began to unfold in late March and early April, most Wall Street strategists did not hesitate to lower their price targets for the benchmark S&P 500 (SNPINDEX: ^GSPC). After all, elevated tariff rates could increase inflation and slow the economy, potentially leading to a recession or some kind of stagflation scenario that would make the monetary tools at the Federal Reserve's disposal less effective.
But through the last month and a half, one of Wall Street's most bullish strategists coming into the year, Wells Fargo's Christopher Harvey, hasn't flinched. He hasn't once changed his roughly 7,000 price target for the S&P 500, which is now the highest among his peers. And he still thinks that price target is achievable this year. Here's why.
Reading through Trump's negotiating tactics
Heading into President Donald Trump's second term as president, some investors believed in an idea called the Trump put. During his first term, Trump regularly cited strong market performance, and investors didn't think Trump would do anything that would hurt the stock market. However, after the tariff announcements in early April, this theory went out the window as the S&P 500 fell as much as 21% from the all-time high it reached in February.
Image source: Getty Images.
It seemed that Trump would do whatever it takes to reorder global trade and bring higher-paying manufacturing jobs back to the U.S. after decades of what he considered unfair treatment by other countries and their trade policies with the U.S.
However, Harvey told MarketWatch that he didn't think Trump would ultimately follow through on the elevated tariff rates, saying:
We felt the second half [of 2025] was always going to be much better. We thought that tariffs were a negotiating ploy, which turns out mainly to be true. We thought the underlying economy and the strength of the consumer, while not pristine or stellar, were still solid ...
So far, Harvey has called it right. Both the U.S. and China have temporarily lowered tariffs against one another's goods as they try and hammer out a broader deal. And it seems like the worst of the tariff negotiations is now in the past.
Recent economic data has also suggested the economy may be in better shape than feared. The U.S. added more jobs than expected in April, while inflation data pointed to cooling prices. Rate cuts by the Fed could help lift the S&P 500.
"What we're seeing is inflation expectations are coming down," Harvey said. "Some of our research is also indicating to us that corporations are not elevating prices the way the narrative is being portrayed. To that effect, price increases are quite modest." If broader economic uncertainty can be reduced, Harvey thinks tailwinds around artificial intelligence (AI) and increased mergers and acquisitions activity will resurface.
Harvey doesn't see a repeat of the dot-com bubble in AI. While internet and telecom in the late 1990s and early 2000s were being funded by companies with too much debt, much of the AI capital expenditures today are being funded by massive hyperscalers with fortress-like balance sheets. The big risk Harvey sees weighing on the market are higher interest rates. The yield on the 10-year Treasury note remains elevated around 4.5% (as of May 15).
Can the S&P 500 hit 7,000?
I still see some challenges weighing on the market, including higher rates, as Harvey mentioned, and the continuing tariff saga. The fast pace of news has made it easy to forget that tariffs could still end up being quite elevated relative to previous levels.
While Trump paused high tariff rates on Chinese imports, it still looks like most of the major trading partners face at least a blanket 10% tariff on imports. There are also still 25% tariffs on steel, aluminum, and auto parts, although the administration has now provided some offsets to the auto tariffs. These, along with some signs of a weaker consumer, could still impact the economy negatively.
That said, the market may be able to work through tariffs if there is more clarity. A 10% blanket rate is still way better than the reciprocal rates Trump introduced on "Liberation Day" back in April. Furthermore, recent economic data suggests that consumers and the economy are holding steady for the time being. This leads me to believe the market can move higher this year.
I feel less confident about the S&P 500 hitting 7,000, but somewhere in the low to mid 6,000s could still be attainable.
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Wells Fargo is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
