- A recent survey of 47 market strategists, analysts, and portfolio managers focused on stock market predictions shows that the benchmark S&P 500 index is expected to reach 7,620 points by the end of 2026. This represents a marginal upside of 1.3% compared to Tuesday's closing price of 7,519.12 points, with the mid-2027 target further raised to 8,050 points.
- Driven by strong first-quarter corporate earnings at the micro level and robust growth in AI capital expenditures, market expectations for the year-on-year earnings growth of S&P 500 index companies in 2026 have surged from 16% at the beginning of January to nearly 25%, marking the highest profit growth forecast since the early recovery phase of the pandemic in 2021.
- Geopolitical conflicts leading to energy premiums and potential inflation stickiness are reshaping the monetary policy path. The swap market has priced in the probability of a Federal Reserve rate hike in the second half of 2026, marking a significant shift from the liquidity easing logic widely anticipated at the beginning of the year.
Earnings Expectations Adjust to Hedge Against Macro Tightening Risks
In the latest survey conducted from May 15 to 26, strategists generally raised the underlying earnings support for the US stock market. Despite concerns about stagflation due to supply chain pressures from Middle East conflicts and ceasefire agreement violations near the Strait of Hormuz, the resilience in corporate earnings revisions effectively absorbed this macro headwind. Data from the London Stock Exchange Group shows that the current nearly 25% annual profit growth expectation provides downside protection for index valuations. This bull market characteristic driven by micro fundamentals led 9 out of 13 experts surveyed to clearly state that the likelihood of a more than 10% correction in the benchmark index within the next three months is low.
Strong Momentum in AI Capital Expenditure
The Philadelphia Semiconductor Index has recorded a gain of over 80% since the end of December last year, confirming the rigid expansion of capital expenditures by tech giants from the underlying technology hardware level. NVIDIA, a representative AI company, recently announced an $80 billion stock buyback plan and an unexpectedly strong second-quarter revenue guidance, signaling to global capital markets that demand for computing power has not peaked. As most large multinational companies are in a technological arms race to gain an advantage, this non-productive capital expenditure has temporarily translated into operating income for upstream chip and server suppliers. Even though long-term investment returns remain to be verified, the saturation of orders in the short to medium term continues to support the Nasdaq and S&P 500 indices in testing historical highs.
Revaluation of Rate Hike Pricing Triggered by Geopolitical Conflicts
Supply-side shocks at the macro level are profoundly changing the underlying pricing in the fixed income market. Recent energy price fluctuations caused by ongoing Middle East conflicts have led to an upward shift in the US Treasury yield curve, directly reversing the optimistic expectations for Federal Reserve rate cuts at the beginning of the year. Futures trading data indicates that the current market pricing benchmark has shifted to include the probability of a Federal Reserve rate hike in the second half of 2026. Ameriprise Chief Market Strategist Anthony Saglimbene warns that rising energy prices and interest rates mean that inflation is becoming increasingly entrenched. If commodity prices experience a systemic rise due to further escalation of geopolitical tensions in the Strait of Hormuz, the market may face upward revaluation pressure on the risk-free rate center.
Valuation Resilience and Divergence in Forward Premiums
Although the Dow Jones Industrial Average and the Nasdaq Composite Index experienced a phase correction of at least 10% from their highs in March, current institutional investors have provided different divergent pricing for forward premiums. The median survey predicts that the Dow will close at 52,500 points by the end of this year, maintaining a steady upward trend from Tuesday's close of 50,461.68 points. Some relatively optimistic institutions, such as Northlight Asset Management, have even given an extreme prediction of the S&P 500 index reaching 8,300 points by year-end. Against the backdrop of high earnings growth expectations, as long as core inflation does not trigger further real economic recession, the structural resilience of US stock valuations is expected to be maintained, although the concentration risk between industries may become more pronounced in the second half of the year.
