The S&P 500’s record-setting run has prompted major investment banks to recalibrate their outlooks, with both Barclays and Deutsche Bank raising their year-end targets.
On Wednesday, Deutsche Bank lifted its forecast to 7,000 from 6,550, while Barclays moved its projection to 6,450 from 6,050. The upgrades underscore the market’s resilience, which has been fueled by stronger-than-expected corporate earnings, sturdy U.S. economic growth, and investor enthusiasm surrounding artificial intelligence.
The index climbed to an all-time high of 6,555.97 earlier in the day and has already risen 11.2% this year, buoyed by a rally that has lifted stocks more than 30% from their April lows. Both banks’ revisions add to a growing chorus of Wall Street firms that have raised their outlook despite persistent worries over President Donald Trump’s tariff policies and the risks they pose to both corporate profits and broader economic momentum.
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“We expect equity valuations to remain elevated by historical standards, driven by higher payout ratios, perceptions of higher trend earnings growth…and earnings resilience with fewer significant drawdowns,” said Binky Chadha, chief global strategist at Deutsche Bank.
Barclays echoed that sentiment but injected a note of caution, saying, “Corporate earnings are solid and global GDP growth is stabilizing, but U.S. labor market risks are worsening.”
Fresh labor market data released Friday showed U.S. job growth weakening sharply in August, with the unemployment rate rising to 4.3%, its highest in nearly four years. Those figures, combined with tame inflation readings, have heightened expectations of Federal Reserve rate cuts, a factor that could continue to buoy equities. Barclays is betting on three rate cuts before year-end, which it argues would help offset labor market weakness. In addition to its year-end revision, Barclays also raised its 2026 target for the S&P 500 to 7,000 from 6,700.
For investors, the debate now shifts toward what 2026 might hold. Analysts see two sharply divergent scenarios.
In the best case, the AI-driven productivity boom continues to spread beyond big tech into manufacturing, healthcare, and financial services, fueling a broad-based rise in earnings. If Federal Reserve rate cuts succeed in engineering a soft landing—stabilizing growth without triggering a deeper labor market shock—the S&P 500 could not only meet but surpass Barclays’ 7,000 forecast. Under this trajectory, equity valuations would remain elevated, supported by strong global GDP growth and an environment where corporate payout ratios stay high.
The worst-case, however, casts a more fragile picture. If Trump’s tariffs intensify and escalate into broader trade conflicts, corporate margins could erode even as input costs climb. A more pronounced downturn in the U.S. labor market could sap consumer demand, forcing companies to cut back on hiring and investment.
Combined with the risk of a policy misstep by the Fed—either cutting rates too late or too aggressively—the S&P 500 could falter, erasing much of its recent rally and sinking well below current levels. In such a scenario, today’s optimism around AI could prove to be overstated, leading to painful corrections in valuations.
All eyes now turn to the Fed’s policy meeting next week, where investors hope to glean clues on the trajectory of rate cuts and the broader market direction. For now, Wall Street banks remain broadly bullish, betting that resilient earnings and AI momentum will keep the S&P 500 elevated.
But with job growth slowing and political risks simmering, 2026 could yet test how durable this record-setting rally really is.