Strong corporate earnings and renewed enthusiasm for AI lead Wall Street to raise S&P target prices

Driven by strong corporate earnings and renewed investor enthusiasm for artificial intelligence, the U.S. stock market has reached an all-time high, prompting Wall Street strategists to rush to raise their expectations for the S&P 500 index.

Deutsche Bank strategist Binky Chadha has raised his year-end target for the U.S. benchmark index to 7,000 points, indicating more than a 7% upside from current levels. Meanwhile, Barclays has also increased their forecasts, while the team at Wells Fargo Securities expects the index to rise by 11% by the end of next year. So far this year, the S&P 500 index has risen over 10%.

Since the beginning of this year, the U.S. stock market has continued to rise in recent months, driven by expectations of interest rate cuts from the Federal Reserve and optimism about economic growth resilience. This week, both the S&P 500 index and the tech-heavy Nasdaq 100 index have surged significantly.

This round of collective target price increases marks a return to a bullish outlook among strategists after experiencing a rollercoaster market driven by President Trump's erratic policy moves. Previously, they had lowered their forecasts after the global tariff policies were fully rolled out in April, but as Trump softened his trade rhetoric, market sentiment turned optimistic again.

Strong Earnings Expectations, Continued AI Frenzy

Corporate earnings prospects are the core pillar supporting Wall Street's optimistic sentiment. Despite previous market concerns that tariffs could impact businesses, the actual effects have been less than expected, and analysts continue to raise earnings forecasts.

Data shows that earnings for S&P 500 index constituents are expected to soar nearly 10% by 2025 and grow another 13% in 2026. Although recent slowdowns in the labor market have reignited concerns about economic stagnation, strong earnings expectations clearly provide investors with greater confidence.

The ongoing enthusiasm for artificial intelligence is another key factor driving this round of stock market gains. Wells Fargo's new Chief Equity Strategist Ohsung Kwon stated:

“There is a bubble in the market, but as long as capital expenditures in the AI sector remain intact, the bull market should continue.”

Wall Street generally believes that investments and developments surrounding AI will continue to provide upward momentum for tech stocks and the broader market, which is also one of the reasons for the Nasdaq 100 index's particularly strong performance.

Mixed Bullish and Bearish Views, Short-Term Risks Persist

Despite the overall optimistic sentiment, some strategists have also pointed out the short-term risks that exist. JP Morgan strategist Dubravko Lakos-Bujas warned that inflation and poor seasonal factors could pose short-term risks. However, he believes that with the easing of policy headwinds, declining interest rates, and record shareholder dividends, the S&P 500 index could rebound to around 7,000 points early next year.

Lakos-Bujas wrote in a report:

"Although we maintain a cautious stance in the short term, we believe the outlook for the S&P 500 index is constructive in the longer term."

Barclays strategist Venu Krishna also expressed a similar view, raising his S&P 500 index target for 2025 from 6,050 points to 6,450 points. Although this target price implies a 1% decline from Tuesday's closing price, he believes the upward trend will continue into next year, pushing the index to 7,000 points. He stated, "The macro environment is under pressure, but we have a 'half-full' perspective."

In addition to earnings and AI, improvements in macroeconomic factors also provide support for the stock market. Deutsche Bank's Chadha raised the target price by nearly 7%, noting that the direct impact of tariffs is estimated to have already transmitted half into inflation. He also believes that investor positioning, better-than-expected economic growth, and a weaker dollar will all support the stock market.

Barclays' Krishna also mentioned that the stabilization of global growth is one of the reasons for his upward revision of forecasts. These positive macro signals have, to some extent, offset the market shocks caused by previous uncertainties in trade policy, allowing strategists to assess the market fundamentals more clearly