Goldman Sachs Trading Desk: Expects copper tariffs to ultimately be 25%, with cyclical and structural factors supporting stock returns over the next 12 months

According to the Zhitong Finance APP, Goldman Sachs recently believes that the benefits brought by short positions and sentiment in the U.S. stock market may have largely passed. Entering the second half of the year, fundamentals may become the main driving factor across asset classes. In the 12-month asset allocation, Goldman Sachs has recently slightly shifted towards risk—upgrading stocks from neutral to overweight and downgrading cash from overweight to neutral, as the bank expects cyclical and structural drivers to support stock returns and believes that there is limited room for a significant decline in bond yields. Additionally, the team expects that the copper tariff will ultimately be 25%, rather than the 50% announced by President Trump.

1. U.S. Stock Market Sentiment

Due to overall positions and sentiment indicators being slightly above long-term averages, the benefits brought by short positions and sentiment in the U.S. stock market may have largely passed. Entering the second half of the year, fundamentals may become the main driving factor across asset classes.

Chart: Since the "unlock date," market sentiment and positions have generally rebounded and are leaning towards optimism. The average percentile of sentiment indicators (data starting from 2007)

2. Core Focus of Macroeconomic Research

Pre-pricing interest rate cuts, delay in implementing Trump tariffs, European fiscal policy

We have recently lowered our expectations for U.S. Treasury yields to reflect our expectations for earlier and larger interest rate cuts by the Federal Reserve. We now expect the 2-year/10-year U.S. Treasury yield to reach 3.45%/4.20% by the end of the year (previously expected to be 3.85%/4.50%), which means the yield curve may steepen slightly.

We still believe that for the bond market to see a more significant rebound, the economic growth outlook needs to be weaker than we currently expect, and the concerning fiscal trajectory in the U.S. along with global upward pressure on yields from Europe and Japan will limit the downside potential for U.S. interest rates.

The lower interest rates we now expect, combined with the continued strong fundamentals of large U.S. stocks and investors' willingness to endure potential short-term earnings weakness, have also prompted us to recently raise our forward P/E ratio expectation for the S&P 500 index from 20.4 times to 22 times, thereby raising our index targets for 3 months/6 months/12 months from 5900 points/6100 points/6500 points to 6400 points/6600 points/6900 points.

It is worth noting that the leadership of large stocks has driven the recent market rebound, causing our market breadth indicator to drop to its lowest level since 2023—we expect that as recently underperforming stocks "catch up," the scope of future market rebounds will be broader.

The more dovish expectations for the Federal Reserve have led the market to reprice in the context of the "Goldilocks" scenario (neither too hot nor too cold), driving risk premiums to compress and valuations to expand. We believe this indicates a slight negative asymmetry in stock investments in the short term Therefore, in terms of tactical asset allocation, we maintain a neutral stance. However, in our 12-month asset allocation, we have recently slightly shifted towards a risk-on approach—upgrading equities from neutral to overweight and downgrading cash from overweight to neutral, as we expect cyclical and structural drivers to support equity returns, and we believe there is limited room for a significant decline in bond yields.

Nonetheless, we still believe that diversifying equities across different regions and styles is valuable.

We estimate that the latest announced series of tariff rates—including the increased tariff rates on several countries effective August 1, and the 20% tariff on imports from Vietnam announced last week—if implemented, would further add to our anticipated 14 percentage point increase in the effective U.S. tariff rate this year.

However, we generally expect that these higher rates and the similarly scheduled reciprocal tariffs effective August 1 will not actually come into effect, partly because we believe that trade partners like the European Union are more likely to reach an agreement before the new deadline. That said, at least in the short term, the higher rates on a few countries may come into effect.

We also anticipate that more industry-specific tariffs will soon be announced following the copper tariffs—we expect the copper tariff to ultimately be 25%, rather than the 50% announced by President Trump. Therefore, we believe the risks surrounding our tariff expectations are slightly skewed to the upside, but the range of outcomes is much narrower compared to a few months ago.

We believe that the ongoing tug-of-war over tariff implementation will create higher uncertainty for U.S. companies and foreign investors in U.S. assets, which is also a key reason we expect the dollar to weaken further. However, we find that so far, the actual impact of this uncertainty has been surprisingly small, possibly because trade-related investments account for only a small share of GDP in most economies, and the easing of financial conditions since the beginning of this year has mitigated the adverse effects of uncertainty, making it more difficult for the market to price in uncertainty-driven impacts.

Aside from the market impact, we believe that the ongoing tariff negotiations pose upside risks to our U.S. inflation forecast. However, we also see that so far, the transmission of higher tariffs to consumer prices has been limited, which poses downside risks; therefore, we maintain our core Personal Consumption Expenditures (PCE) inflation rate expectation for December 2025 at around 3.3% (year-on-year).

3. We expect the narrow range of market rebounds to expand in the future

Market breadth, percentage below 52-week highs: the difference between the S&P 500 index and the median stock (the lower the value, the narrower the breadth)

Chart 2: We believe there is upside potential in tariff pricing for December 2025 COMEX and LME Forward Price Spread (USD)

IV. Global Economic Review: Trade Will Weigh on Growth Outside the U.S.

The surge in exports to the U.S. in the first quarter provided a significant boost to manufacturing activity and GDP for U.S. trading partners. However, the two favorable factors driving this surge—early shipments to the U.S. and the boost to export demand from the appreciation of the dollar in the fourth quarter of 2024—are now turning into unfavorable factors, and the implementation of tariffs will further suppress foreign export growth in the coming months.

Estimates of the impact on each channel indicate that the effect of early shipments will completely reverse within the next three months, with recent dollar depreciation leading to a 3% decline in real export totals, while the implementation of tariffs will also result in a 3% decline in export totals. Overall, these drag factors suggest that the total exports of major economies will be impacted by 4%-5%.

The decline in trade may spill over into broader economic activity, as the historical relationship between trade and economic activity indicates that trade drag could lead to a 1%-5% decline in industrial production and a 1-4 percentage point drop in the manufacturing Purchasing Managers' Index in the coming months. These patterns are consistent with our forecast of a slowdown in global (excluding the U.S.) GDP growth for the remainder of 2025.

Previously, we used product-level data on U.S.-China bilateral tariffs and trade to demonstrate the existence of early shipments during the trade war of 2018-2019. After updating these estimates, we found that imports from China to the U.S. surged in the months leading up to the imposition of tariffs, followed by a subsequent decline (Chart 2). Importantly for our analysis, these estimates indicate that the effect of early shipments will completely reverse within three months after the implementation of tariffs, meaning that the drag from the fading of early shipments will end in the coming months (and is likely to reverse). The second driver of the surge in U.S. imports is the overall appreciation of the dollar by 6% in the fourth quarter of 2024, which stimulated demand for foreign goods. By analyzing cross-national panel data from developed markets and major emerging markets, we found that a 10% depreciation of local currency against the dollar typically leads to a 2%-5% decline in real export totals, with a greater impact on commodity-exporting countries like Canada and Brazil. Applying our estimated impulse response to changes in currency valuation over the past few quarters suggests that total exports will be dragged down by about 3% on average in the second half of 2025, with the UK and Eurozone experiencing the largest shocks, as the pound appreciated 9% against the dollar and the euro appreciated 12% against the dollar in the first half of 2025.

Chart 1: In the first quarter of 2025, many U.S. trading partners' manufacturing contributed to GDP growth due to the surge in exports to the U.S