Deutsche Bank has raised its year-end S&P 500 target to 7,000 from 6,550, supported by resilient growth and stronger earnings. The index has resumed its three-year uptrend post the Liberation Day selloff, with equities growing annually at 22.7%.

Tariffs have not affected growth or inflation as initially feared, with earnings momentum gaining pace. Corporate profits increased by 10% in Q2, up from 8.7% in Q1, a common rate for non-recession times. Minimal tariff impacts have prompted Deutsche Bank to adjust its 2025 EPS forecast to $277 and set 2026 estimates at $315.

High Valuations and Investor Positioning

The bank expects valuations to remain high, driven by better payout ratios and faith in earnings sustainability. Discretionary investor positioning is neutral, suggesting room for upward movement if sentiment improves. Deutsche Bank’s demand-supply model predicts around 8% more gains by year’s end.

Despite trade and policy risks, macro growth and earnings are the primary motivators. Rates are less concerning unless there is a major surprise, and any tariff-driven inflation is expected to be short-lived, unlike the 2021–22 surge.

Given the strong upward trend in the S&P 500, we should consider positioning for further gains toward the new 7,000 year-end target. The market has convincingly moved past the mid-year “Liberation Day” selloff, reinforcing a powerful multi-year advance. This suggests that buying call options or establishing bullish call spreads with December 2025 expirations could capture the expected upward move.

The foundation for this confidence is robust corporate earnings, which are accelerating significantly from the low single-digit growth we saw back in early 2024. With Q2 2025 profits growing 10%, we are seeing a healthy, non-recessionary environment where companies are successfully managing costs. The forward P/E ratio for the S&P 500 is holding steady above 24, indicating investors are willing to pay a premium for this durable earnings stream.

Managing Volatility and Interest Rate Concerns

Volatility is also a key factor, and traders should take advantage of its current state. The VIX has been trading in a tight range between 12 and 15 for the past quarter, which is well below the historical average of around 19 and creates an ideal environment for selling premium. This makes selling out-of-the-money cash-secured puts or initiating bull put spreads attractive strategies to generate income while maintaining a bullish outlook.

Concerns over interest rates and inflation appear to be secondary drivers for now. With core inflation having stabilized near the Fed’s 2.5% target for two consecutive quarters, the risk of a surprise rate hike is diminished. This contrasts sharply with the major inflationary surge we had to navigate back in 2021-2022, making the current macroeconomic backdrop far more predictable for equities.

Investor positioning is currently neutral, which means there is significant capital on the sidelines that could fuel the next leg up. As sentiment improves, this money is likely to flow into the market, supporting the 8% upside we anticipate by year-end. Therefore, structuring trades that benefit from a steady climb, rather than a sharp spike in volatility, seems to be the most prudent approach for the coming weeks.

Create your live VT Markets account and start trading now.