Wall Street Strategists Warn S&P 500’s Momentum Could Unravel Under Stagflation Pressure, Tariff Concerns

JPMorgan and RBC Capital Markets raised red flags on Monday over the S&P 500’s recent rally, citing that inflation risks, weak growth, and unresolved trade tensions could weigh on markets in the months ahead.

The S&P 500 climbed 6.2% in May, its best month since November 2023, while the Nasdaq Composite surged 9.6%. 

Gains were fueled by optimism around U.S.-China trade talks, political momentum behind President Donald Trump’s tax proposal, and hopes that rate cuts could begin as soon as September.

However, JPMorgan strategist Mislav Matejka said the rally may be short-lived if concerns about stagflation take hold. “Post the bounce, we shift softer leg is in store next, which could resemble a bit of a stagflationary episode,” he wrote in a note cited by Bloomberg. 

He also pointed to worsening trade frictions, saying that the “current tariffs picture is worse than most thought at the start of the year.”

RBC Capital Markets revised its year-end 2025 S&P 500 target to 5,730 from 5,550 but warned that the index is still likely to decline from current levels. “We expect the path of stocks to be choppy through year-end,” the analysts wrote in a note cited by Investing.com, highlighting downside risks and a wide forecast range.

RBC’s models include inflation in the upper 2% range, three Fed rate cuts beginning in September, and 1.3% real GDP growth. However, the brokerage noted that rising 10-year yields or disappointing data could quickly shift sentiment.

The RBC analysts also flagged waning interest from foreign investors. “Tariffs opened a door–an openness to investing in other geographies–that had been closed for quite some time,” they noted.

RBC described its stance as “rather neutral,” emphasizing that “current pricing in the S&P 500 already reflects the step-up improvement in macro fundamentals.” 

However, with investor sentiment showing signs of exhaustion and policy risks still in play, the brokerage sees increased potential for a market pullback before year-end.

The SPDR S&P 500 ETF Trust (SPY) was down 0.38% in pre-market trade on Monday after breaking even for the year on Friday. Over the past 12 months, SPY’s stock has gained more than 12%. 

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read also: Dow Futures Edge Lower As Global Tensions Spook Investors