S&P 500 Defies Economic Headwinds: Why Analysts Remain Bullish Despite Tariffs & Recession Fears

Despite tariffs continuing to hammer the U.S. and Canadian economies, the stock market is still trading at record levels. And, while some believe the stock market is ripe for a pullback or even a correction, Wall Street analysts think the S&P 500 will continue to climb higher.

How Are Tariffs Impacting the Economy?

U.S. President Donald Trump’s global tariff policies have been wreaking havoc on the U.S. and Canadian economies. In July, the Canadian economy bled 41,000 jobs. In August, it shed 66,000 jobs, with the unemployment rate rising to 7.1%. This is the highest unemployment level since May 2016, if you exclude the 2020 and 2021 pandemic years.

That’s far worse than what was expected, with analysts predicting the Canadian economy would add 10,000 jobs and the unemployment rate would rise to seven percent.

Meanwhile, the U.S. economy added just 22,000 jobs in August, with the unemployment rate rising to 4.3%, its highest level in nearly four years.

The U.S. as a whole may not be in a recession, but 22 states are in a recession, with another 13 states treading water. Should California and New York tip into a recession, they could drag the whole U.S. economy down with them.

S&P 500 Rallying Despite Economic Woes

Economic doom and gloom may be stealing the headlines, but the fact is that investors are brushing off this data and concerns about a U.S. government shutdown.

But why?

Well, stronger corporate earnings, enthusiasm over artificial intelligence, and hopes that the Federal Reserve and Bank of Canada will announce interest rate cuts are all factors that are boosting investor optimism.

The S&P 500 is at record levels, up 14.5% in 2025 and 17% over the last 12 months. The red-hot Nasdaq is up approximately 19% year to date and 26.5% on an annual basis. The TSX, Canada’s biggest stock market, is beating them both, up 24% this year and almost 27% year over year.

What Is the Outlook for the S&P 500?

While economic risks persist, Wall Street thinks the stock market will continue to hit record highs over the coming weeks and months. Analysts have increased their third-quarter earnings per share (EPS) estimates for S&P 500 companies for the first time since the fourth quarter of 2021.

The median EPS estimate for S&P 500 companies rose 0.1% from June 30 to September 30, going from to $67.41 from $67.32. That might not sound like much, but analysts typically cut their earnings estimates during the quarter. Over the past five years, the average decline in median EPS estimates has been 1.4%.

Further out, over the past 10 years, or 40 quarters, the average decline in the median EPS estimate has been 3.2%. Over the past 15 years, it has been 3.4%. And during the past 20 years, or 80 quarters, the average decline in median EPS estimates has been 4.3%.

The outlook for 2026 seems robust, too, with analysts increasing their S&P 500 earnings estimates over the past three months by 1.2% to $303.76 from $300.14.

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