As the S&P 500 index (^GSPC) continues its surge to record highs, one Wall Street strategist is becoming increasingly bullish on the benchmark.
Evercore ISI strategist Julian Emanuel has raised his year-end 2025 S&P 500 target from 5600 to 6250 points. He now projects that driven by what he calls a "once-in-a-generation" artificial intelligence transformation, the S&P 500 will climb approximately 20% to 7750 points by the end of 2026.
While this target represents a slight pullback from current levels in the near term, Emanuel's long-term outlook is more optimistic, highlighting his view that AI applications will simultaneously boost both corporate earnings and valuations.
Emanuel's bullish expectations extend even further: he believes that if an "AI-driven asset bubble" forms, the S&P 500 could reach 9000 points. However, he warns that this scenario could emerge if the Federal Reserve adopts overly accommodative policies, even amid persistent inflation pressures.
Emanuel notes that during this process, corrections of 10% or more are possible, but he views such pullbacks as buying opportunities within a structural bull market.
"A once-in-a-lifetime opportunity," Emanuel wrote in his Sunday report, comparing the current AI-driven stock market rally to the internet boom of the 1990s. He believes the current situation differs from that era in that AI adoption is progressing faster, spans a broader range of industries, and creates more extensive investment opportunities.
Beyond updating his S&P 500 targets, the strategist has also raised earnings expectations: 2025 earnings per share (EPS) from $255 to $264, and 2026 EPS from $272 to $287. His rationale includes corporate resilience against tariffs and productivity gains from artificial intelligence.
This expectation aligns with the core theme emphasized by other Wall Street institutions: earnings remain the key driver of stock market performance.
Data released by FactSet last Friday shows that 98% of S&P 500 component companies have reported earnings, with second-quarter earnings growth expected to reach 11.9% year-over-year—marking the third consecutive quarter of double-digit growth.
Beat rates have been widespread, with 81% of companies exceeding EPS expectations. Among them, the "Magnificent Seven" tech stocks once again delivered stellar performance with 26.6% year-over-year earnings growth, while other index components saw only 8.1% earnings growth.
Citigroup (Citi) maintains its year-end S&P 500 target of 6600 points and reiterated its full-year EPS outlook of $272 on Monday. The firm cited policy support and resilient consumer spending as additional driving factors.
Citi's U.S. equity strategy team, led by Scott Chronert, stated that the year-end target of 6600 points reflects their confidence in several factors: continued earnings momentum following strong second-quarter results; tariff impacts on businesses being "not as severe as feared"; and new tax incentive policies from President Trump's "One Big, Beautiful Bill."
However, Chronert warned that investors should prepare for intermittent volatility as markets enter a potentially more turbulent period toward year-end.
Citi expects that following the significant second-quarter earnings beats, third-quarter earnings data may be "mixed." Additional uncertainty stems from Friday's late development when a federal appeals court struck down most of President Trump's global import tariff policies, ruling that the related executive orders exceeded statutory authority. This 7-4 decision does not affect tariff implementation while the government appeals to the Supreme Court.
"Overall, tariff-related news has not really changed our strategy through year-end so far," Chronert said, noting that the final outcome of legal challenges remains uncertain.
He added that tariff reductions might ease corporate margin pressures, but eliminating tariffs would also remove a revenue source that investors previously believed could partially offset the federal deficit. He warned that even with improved earnings, this situation could reignite concerns about fiscal issues.
Related to this, U.S. long-term Treasury yields rose modestly on Tuesday, with the 30-year Treasury yield (^TYX) climbing about 5 basis points to 4.97%—gradually approaching the 5% threshold typically viewed as a resistance level for stocks.
Against this backdrop, market focus has shifted back to monetary policy in the near term.
One driver of recent stock market gains has been investor bets on Federal Reserve rate cuts this month—following Fed Chairman Jerome Powell's speech at the closely watched Jackson Hole symposium, which opened the door for rate cuts. This expectation will face an important test from Friday's August nonfarm payrolls report, following last week's disappointing inflation data and recent signs of labor market weakening.
Markets currently price in roughly a 90% probability of a 25 basis point Fed rate cut in September, though data released this week could strengthen the case for further aggressive easing. The Fed will announce its next rate decision on September 17, which will largely determine how much policy support investors can expect to receive.
