As the S&P 500 continues surging to record highs, a Wall Street strategist is becoming increasingly optimistic about the benchmark index's prospects. Evercore ISI strategist Julian Emanuel has raised his year-end 2025 target for the index from 5600 points to 6250 points, and expects the S&P 500 to climb to 7750 points by the end of 2026 under the drive of artificial intelligence (AI) technology—a "once-in-a-generation" transformation, representing approximately a 20% gain.
From a short-term perspective, this target represents a slight pullback from current levels. However, Emanuel's long-term outlook is more optimistic, emphasizing that AI adoption will drive both corporate earnings and valuation improvements. His bull market scenario is even more aggressive: Emanuel predicts that if an "AI-driven asset bubble" emerges, the S&P 500 could even climb to 9000 points. However, he also warns that even if inflationary pressures persist, overly accommodative Federal Reserve policy could catalyze such a scenario.
Emanuel states that during this process, a 10% or greater correction in the S&P 500 is possible, but he believes that under a structural bull market backdrop, such corrections represent buying opportunities.
In a report published last Sunday, Emanuel wrote that the current AI-driven stock market rally can be compared to the internet boom of the 1990s, calling it a "once-in-a-lifetime twice" opportunity. He believes this rally differs from the previous one in that AI applications are spreading faster and covering a broader range of industries, creating more diverse investment opportunities.
Besides updating S&P 500 targets, the strategist also raised earnings expectations: 2025 earnings per share from $255 to $264, and 2026 from $272 to $287. He noted that the upward revision is based on both companies' resilience to tariffs and productivity gains from AI. This expectation aligns with the core view emphasized by other Wall Street institutions: corporate earnings remain the key driver of stock market trends.
Data released by FactSet last Friday showed that among S&P 500 component companies, 98% have reported earnings, with second-quarter earnings expected to grow 11.9% year-over-year, which would mark the third consecutive quarter of double-digit growth for the index. Above-expectation earnings were widespread, with 81% of companies exceeding earnings per share expectations. Among them, the "Magnificent Seven" performed brilliantly again with earnings growth of 26.6%, while other S&P 500 components saw earnings growth of only 8.1%.
Citi maintains its year-end S&P 500 target of 6600 points unchanged and reiterated its full-year earnings per share outlook of $272 on Monday. The bank noted that policy support and consumer spending resilience are additional positive factors.
Citi's US equity strategy team led by Scott Chronert stated that the year-end target of 6600 points reflects both confidence in continued earnings momentum following strong second-quarter performance and optimism about "companies being less affected by tariffs than expected" and new tax incentive policies under Trump's "Make America Great Again" agenda.
However, Chronert also warned that as the market moves toward year-end, volatility may intensify, and investors need to prepare for short-term fluctuations. Citi predicts that after second-quarter earnings significantly exceeded expectations, third-quarter earnings data may be "mixed."
Uncertainty is increasing: late Friday, a federal appeals court ruled that Trump's global import tariff executive order exceeded his statutory authority, rejecting most tariff policies. However, the ruling does not affect the implementation of existing tariffs while the government appeals to the US Supreme Court.
Chronert stated: "Overall, tariff-related news has not really changed our investment strategy before year-end so far." He pointed out that legal outcomes remain uncertain. He added that tariff reductions might ease corporate profit margin pressure but would also eliminate what investors view as an important revenue source to hedge fiscal deficits. He warned that even if corporate earnings improve, this situation could reignite market concerns about fiscal issues.
Related to this, long-term US Treasury yields rose slightly on Tuesday, with 30-year Treasury yields climbing about 5 basis points to 4.97%, approaching the 5% threshold often viewed as a negative factor for stocks.
Against this backdrop, market focus has shifted back to monetary policy in the short term. Previously, Federal Reserve Chairman Powell hinted at possible rate cuts in his closely watched Jackson Hole speech, leading markets to bet on Fed rate cuts this month, with recent stock market gains driven by this expectation.
Friday's August non-farm payroll report will be key to testing this expectation—the previous week, the US released inflation data that fell short of expectations, and there are recent signs that the labor market is weakening.
Currently, markets expect about a 90% probability of a 25 basis point rate cut by the Fed at its September meeting, but data released this week could increase the likelihood of further significant Fed rate cuts. The Fed will announce its next rate decision on September 17, which will largely determine how much policy support investors can receive.
