2025’s been a remarkable year for the S&P 500. Despite significant overvaluation concerns among US stocks, America’s flagship index has continued to climb higher by almost 10%, so far. That could quickly change if the impact of tariffs starts to emerge in the economic data, with some predicting that a recession could be on the horizon. And yet, not everyone’s as bearish.
Morgan Stanley’s chief US equities strategist believes that the recent bull run will continue. Meanwhile, the chief investment strategist at Oppenheimer has recently hiked his price target for the S&P 500 from 5,950 all the way to 7,100!
If these experts are right, then another 10% return could be on the horizon for S&P 500 index investors. And possibly even more growth could be in store for individual stock pickers. So what’s behind this bullish sentiment?
Digging deeper
The 7,100-point target’s based on a variety of factors. Despite tariffs creating chaos in supply chains, a steady stream of new trade deals with key markets including UK, Japan, and Europe has started easing uncertainty. And based on the latest data, tariff revenues have been growing steadily since their introduction, landing at $27.7bn in July versus $7.13bn a year ago.
At the same time, corporate earnings have so far remained resilient, with a large chunk of the S&P 500 actually beating analyst expectations. It seems consumer spending’s remained resilient, supporting economic growth and pointing towards a healthy business environment. And with artificial intelligence (AI) expected to deliver productivity gains across the board, this momentum could be set to continue into the third and fourth quarters of 2025 and beyond.
However, there’s also a growing theory that the current economic strength could soon start to weaken.
With clarity surrounding tariffs improving, businesses are starting to hike prices to protect their profit margins, and inflation’s slowly ticking back up. At the same time, the latest report surrounding the US jobs market introduced some substantial downward revisions for the number of jobs being created, hinting that the US economy may not be as strong as initially suspected. And that could point towards an incoming economic slowdown.
Too expensive?
That could be quite problematic for some richly valued US stocks like Palantir Technologies (NASDAQ:PLTR). With its price-to-sales ratio now at 137, the AI tech enterprise is now among the most expensive stocks in the S&P 500.
To be fair, it’s also one of the fastest-growing AI companies, with its technologies being deployed by the US government as well as a growing number of commercial customers. For reference, revenue growth in the second quarter of 2025 landed at a staggering 68%.
However, it’s important to note that the bulk of cash flow stems mostly from government contracts, which aren’t exactly known for being a high-growth avenue. Instead, it seems investors are placing a big bet on commercial expansion.
While Palantir’s made good progress on that front, investor expectations are incredibly high, opening the door to volatility if progress starts to slow. And if Morgan Stanley’s or Oppenheimer’s growth hunches prove incorrect, volatility in Palantir shares, along with other high-priced S&P 500 stocks, could be just around the corner. That’s why I’m not rushing to buy right now.
