Top Wall Street strategists have raised their forecasts for the S&P 500, citing strong underlying fundamentals ahead of an earnings season that is expected to serve as a key test for the market’s ongoing momentum.
U.S. equities began the week trading near record highs, as investors focused on earnings reports to assess whether the ongoing AI boom, Federal Reserve policy shifts, and solid economic data are sufficient to support the rally through year-end.
Despite growing concerns over a prolonged government shutdown and repeated warnings of an “AI bubble,” analysts still believe the U.S. market holds further upside potential.
Ed Yardeni, president of Yardeni Research, raised his S&P 500 target to 7,000 points, describing the current rally as a “slow grind” driven by resilient corporate earnings and the potential for interest rate cuts by the Federal Reserve.
Similarly, Julian Emanuel of Evercore ISI maintained his base target of 7,750 points by 2026, noting a 30% probability of a bubble scenario that could push the index to 9,000 points by the end of next year, fueled by accelerating capital flows and sustained investment in artificial intelligence.
Reflecting the breadth of AI-related investment, OpenAI announced a multi-billion-dollar deal with AMD, giving the chipmaker the right to acquire up to a 10% stake in the company—an initiative executives described as “the most ambitious AI buildout in the world.”
In this context, Jeff Bezos, founder of Amazon, described the rapid sectoral growth as a “good bubble,” suggesting that the current investment enthusiasm could lead to innovation that ultimately strengthens the broader economy.
By contrast, David Solomon, CEO of Goldman Sachs, struck a more cautious tone, warning that capital might decline over the next 12 to 24 months, especially if certain investments fail to deliver the expected returns.
Amid these dynamics, a key question arises: how sustainable are the elevated market valuations?
According to DataTrek Research, the S&P 500 is currently trading at around 25 times forward earnings, a level the firm says reflects “full (if not excessive) confidence” in companies meeting expectations. This pricing implies 13% earnings growth in the coming year and an additional 10% increase in 2027.
Nicholas Colas, co-founder of DataTrek, emphasized that elevated valuations are central to the index’s continued rise, noting that optimistic earnings expectations are already priced in.
The tech sector remains the primary engine of this rally, with companies like Alphabet, Amazon, Meta, and Tesla—alongside the broader XLK technology sector—accounting for approximately 48% of the S&P 500’s weight.
Colas pointed out that a record number of large-cap tech firms have issued positive EPS guidance in the previous quarter, reinforcing the notion of strong fundamentals heading into Q3 earnings.
Against this backdrop, the upcoming earnings season is shaping up to be a decisive moment in determining whether the current rally is truly grounded in sustainable fundamentals.
Strategists at Goldman Sachs, led by David Kostin, believe that current earnings expectations are “far too conservative” in light of strong economic data and rising demand tied to AI technologies.
