Jefferies raises S&P 500 target price to 5600 points: Beware of rising core CPI, optimistic about defensive sectors

According to Zhitong Finance APP, Jefferies recently raised its target price for the S&P 500 index to 5,600 points by the end of 2025, corresponding to a price-to-earnings ratio of about 20 times. Desh Peramunetilleke, the head of quantitative strategies at the firm, pointed out in the latest report that despite the upward adjustment of the target price, attention should be paid to changes in historical seasonal patterns and macroeconomic indicators. Since the financial crisis, historical patterns have shown that the average price of U.S. stocks tends to experience a correction from August to September, during which GDP expectations may be revised downward, while core CPI and unemployment rates are expected to rise to 3% and 4.4%, respectively. On a macro level, the U.S. economy is facing the risk of stagflation. The Trump administration has imposed tariffs on multiple countries since April 2025, leading to disruptions in the global supply chain and a sharp decline in export growth in the Asia-Pacific region. According to a United Nations forecast in July 2025, U.S. GDP growth is expected to slow to 1.9%; meanwhile, the Federal Reserve maintained interest rates at its June meeting and is expected to cut rates only twice in 2025, with inflationary pressures likely to persist until the end of the year. Peramunetilleke believes that the "Great Beautiful Act" proposed by the Trump administration could become a key variable for the market. If this policy is implemented, it is expected to alleviate current rating downgrade pressures and may enhance corporate free cash flow levels through policy stimulus. However, he also emphasized that the current valuation of the S&P 500 index is at a high level, with the main supporting factor being that earnings per share are expected to achieve only a 5% year-on-year growth in 2025, which appears slightly insufficient compared to the current valuation level. In terms of industry allocation, the strategist continues to adopt a defensive layout, clearly expressing optimism about sectors that possess anti-drawdown attributes during economic downturns. Specifically, a bullish strategy is adopted for communication services (XLC.US) and utilities (XLU.US); a neutral stance is maintained for real estate, information technology, financials (XLF.US), industrials (XLI.US), and healthcare (XLV.US); while a reduction is recommended for energy (XLE.US), consumer discretionary (XLY.US), and materials (XLB.US). This allocation logic reflects that, against the backdrop of increasing macro uncertainty, funds are more inclined to flow into areas with stable demand and reliable cash flow. It is worth noting that Trump's tariff policy is reshaping the global trade landscape. Traditional allies such as the European Union and Japan are forced to adjust their strategies, with Japan even postponing scheduled talks to resist defense spending pressures. Geopolitical turmoil and policy reversals further exacerbate market concerns about cyclical sectors such as consumer discretionary. In this context, institutions generally recommend focusing on areas with stable cash flow to cope with potential volatility