Strategists say S&P 500 could top 8,000 - but risks of a pullback are mounting

By Nora Redmond

Barclays is latest firm to update its forecast

HSBC raised its price target for the S&P 500 from 7,650 to 8,100 by the end of 2026.

Strategists think the S&P 500 has further to rise, but the risks the market faces are increasing, they say.

RBC Capital Markets said Tuesday it was maintaining its 12-month price target for the S&P 500 SPX of 8,150.

For strategists at the investment bank, headed by Lori Calvasina, in the near-term, the risks of a 5% to 10% pullback in the S&P 500 have increased "for a few reasons."

Firstly, they wrote, the U.S. stock market has just begun a historically difficult period, with the index down in five of the past 10 Septembers. The strategists also noted that the S&P 500 has proved volatile in the second half of the past two U.S. midterm election years, and especially this year, when backlash against artificial intelligence has become a key campaign issue in some races.

Third, the war in Iran has continued to hurt stocks at a time when Washington and Tehran seem far from negotiating a peace deal. They added that investors' concerns regarding inflation and the Federal Reserve's interest-rate decisions have stubbornly lingered, also providing a headwind for equities.

The last risk RBC Capital Markets highlighted is the potential need for analysts to lower their EPS forecasts for 2027, but they added that this one currently seems "elusive" as most EPS growth guidance for 2027 has started to rise.

HSBC on Tuesday lifted its price target for the stock index from 7,650 to 8,100 - and expect the S&P to achieve that milestone at the end of 2026 as opposed to next year, owing partially to strong earnings in the second quarter.

Nicole Inui, head of equity strategy and analyst Sawyer Cremer wrote in a note Tuesday that earnings per share growth in the first half of the year is running close to 40%, and they expect momentum to persist at a pace of 25%.

"We see AI capex as a key catalyst, supporting semiconductors and broader AI-linked equities, alongside a resilient macro and consumer backdrop that underpins the rest of the index," the strategists said, adding that they also expect broad-based outlook raises continuing into the end of 2026.

HSBC recommends technology XLK, financial XLF and industrial XLI stocks.

"That said, sentiment, and the multiple investors are willing to pay for forward earnings, is less certain," Inui and Cremer wrote. "Tech valuations, for instance, remain range-bound despite a strong rise in earnings and record profit margins, suggesting that multiple expansion may be challenging even as fundamentals improve."

They listed possible rate hikes, geopolitical uncertainty, the upcoming midterm elections and increasing liquidity needs from initial-public offerings and hyperscaler funding as concerns from investors. But the strategists hold that these worries are overestimated.

Inui and Cremer wrote that they expect the Fed to hold rates throughout the year and the market volatility surrounding midterms tends to only be temporary. They added despite the geopolitical risk, rising oil prices have only had small impacts on consumer spending. Finally, the strategists said "liquidity concerns look manageable," as recent IPOs have been considerably oversubscribed and the funding needs of hyperscalers have been continuously met.

On Wednesday, Barclays lifted its forecast for the S&P 500 to 7,950 from 7,800 by the end of the year and has maintained its target of 8,800 by December 2027.

However, strategists led by Venu Krishna said while the bank's outlook has improved, it remains "cautious" on valuations "amid resilient inflation, geopolitical uncertainty, a more hawkish rate outlook," and questions surrounding the funding and durability of AI capex.

"As a result, we believe earnings should drive the majority of the upside in our targets, rather than multiple expansion," they wrote.

-Nora Redmond

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(END) Dow Jones Newswires

09-09-26 0724ET