JPMorgan’s equity strategy team has expressed optimism regarding the performance of the S&P 500, projecting that 2026 could be another robust year for U.S. investors, with a year-end price target of 7,500. Led by strategist Dubravko Lakos-Bujas, the firm’s assessment suggests that, under the condition that the Federal Reserve continues to cut interest rates, the index could even surpass the 8,000 mark in the upcoming year.
In a recent note to clients, JPMorgan highlighted several factors fueling this optimistic outlook. The firm acknowledged prevailing concerns surrounding an artificial intelligence (AI) bubble and elevated valuations but believes that current market multiples are justifiably anticipating strong earnings growth. They also pointed to catalysts such as an anticipated boom in AI-related capital expenditure, increasing shareholder payouts, and a more accommodating fiscal policy.
Earnings growth projections play a crucial role in JPMorgan’s outlook, with expectations ranging between 13% to 15% over the next two years. Recent data from FactSet illustrated that S&P 500 companies experienced a 13.4% year-over-year earnings increase during the third quarter, supporting the bank’s target.
JPMorgan’s baseline scenario envisions the Federal Reserve making two additional rate cuts, something that market participants are already pricing in with an 85% chance of a rate cut next month. The firm believes that an improving inflation outlook will catalyze this trend, enabling the S&P 500 to attain and potentially exceed the 8,000 benchmark.
This prediction aligns with another major Wall Street institution, HSBC, which has also set a target of 7,500 for the S&P 500 in 2026, further underscoring the consensus among analysts. The S&P 500 closed at 6,765 in the most recent trading session, indicating significant room for growth.
However, both JPMorgan and HSBC have noted the increasingly K-shaped nature of the U.S. economy, where the gap between high-income earners and those struggling economically is widening. This disparity is fundamentally altering consumer spending patterns and shaping confidence levels. The current earnings season has showcased that lower-income consumers continue to face challenges, leading to more selective spending habits, while wealthier individuals engage in more free-spending behavior, which is often linked to their greater exposure to the stock market.
JPMorgan cautions that this economic divide could lead to volatile investor sentiment, especially as it contrasts with an upbeat outlook for large corporations likely to benefit from the proliferation of AI trends across various industries. The firm points out that companies and governments globally are hastily investing in AI technologies in search of productivity enhancements, driven by worries about remaining competitive.
As the momentum of AI spreads across a multitude of sectors—from technology and utilities to banking, healthcare, and logistics—it creates a landscape of both opportunity and risk, where some companies flourish while others may falter. JPMorgan highlights that this disruption is occurring within a fraught K-shaped economic framework, hinting that the polarization could be intensified by the AI revolution. They predict that the “AI Wall of Worry” will continue to loom over markets for the foreseeable future.
