Several prominent Wall Street firms have revised their year-end projections for the S&P 500, reflecting increasing confidence fueled by the persistent strength of the artificial intelligence sector and mitigation of tariff-related concerns. Deutsche Bank now anticipates the S&P 500 to finish the year at 7,000, up from a previous expectations of 6,550. Similarly, Wells Fargo has adjusted its forecast for the average index value in 2025 to 6,650, marking a 250-point increase from earlier predictions made by its investment institute. Meanwhile, Barclays has increased its year-end price target for the index by 400 points, bringing it to 6,450.
The S&P 500 reached a new record high of 6,550 early Wednesday, spurred by recently released tame inflation data that further bolstered market sentiment. Analysts point out that optimism surrounding artificial intelligence, coupled with the lower-than-anticipated inflationary effects of former President Donald Trump’s tariffs, allows investors to disregard concerns related to an increasingly fragile labor market.
On the AI front, Oracle’s promising cloud growth expectations provided a significant boost to market confidence, leaving analysts impressed. “The music stops when AI capex stops. Enjoy the party,” noted Wells Fargo analyst Ohsung Kwon in a message to clients. Kwon acknowledged the existence of “[froth]” in the market but emphasized that as long as capital expenditures related to AI continue, the current bull market is likely to persist. He forecasts the S&P 500 could possibly rally to 7,200 by the end of 2026, suggesting an upside of more than 10% from the previous day’s closing value.
Recent concerns surrounding Trump’s tariffs had stoked fears that price hikes might compel the Federal Reserve to maintain higher interest rates for an extended period, posing challenges to the stock market. However, market expectations have shifted, with CME’s FedWatch tool indicating complete certainty regarding a potential interest rate cut in the upcoming Federal Reserve meeting.
Binky Chadha, Deutsche Bank’s chief U.S. equity and global strategy analyst, acknowledged the elevated valuations in equity markets but argued that these have been supported by increasing payout ratios and expectations of steady earnings growth. He reiterated his optimism in a note to clients, stating that while he anticipates some inflation uptick, he views it as modest compared to the spikes observed in 2021 and 2022, and likely to be temporary in nature.
In a complementary outlook, Venu Krishna, head of U.S. equity strategy at Barclays, expressed expectations for the Federal Reserve to implement three interest rate cuts before the end of 2025 to address macroeconomic pressures linked to labor market anxiety. Krishna described corporate earnings as “solid” and highlighted signs of stabilization in global GDP growth. His forecast for the S&P 500 in 2026 has also been raised by 300 points to 7,000, driven by a newfound positivity toward the entire technology sector.
Krishna emphasized the robust long-term growth potential of major tech companies, arguing that concerns regarding AI disruption within software firms are exaggerated. “Macro is under pressure, but we take the ‘glass half full’ view,” he concluded in his communication to clients.
