The Zhitong Finance App learned that it is optimistic about the S&P 500 index and expects the target price to be 8,000 points by the end of 2026, based on 21% earnings per share growth; it predicts a target of 9,000 points by the end of 2027, more than double the historical average. The bank's bullish outlook on stocks is driven by a strong profit story. I believe this is still undervalued by the market and will be concretized by upward revisions. While oil prices, inflation, and rising 10-year US Treasury yields may shrink by a factor, this should not offset the impressive earnings story.
Jefferies pointed out that, supported by continued strong profit growth exceeding expectations and AI-driven investment, its 2026 target for the S&P 500 index is based on profit of 373 US dollars per share and 21.5 times, while the 2027 benchmark situation assumes that 450 US dollars of profit per share corresponds to the target of 9,000 points, a factor of 20. The key risk will be a meaningful slowdown in profits, particularly among AI-related companies, which remain the main growth engine of the market.
The bank believes that profit expectations are still undervalued by the market. Following a strong second quarter results period and positive management comments, the bank saw room for further revisions until 2028. Although the revision may slow down, profit expectations are not expected to more than double from the beginning of the year, as in 2026.
Jefferies believes that the profit story is still centered around artificial intelligence, but it's no longer just the Magnificent 7 story. The market now expects S&P 500 profits to grow 29% in 2026, up sharply from about 13% at the beginning of the year. Although Magnificent 7 still expects profit growth of 45%, earnings expectations for the rest of the S&P 500 have substantially improved, with growth forecasts rising to around 24%. The bank estimates that about 46% of the index has direct or indirect exposure to AI and data center spending. These companies expect profits to grow 60% this year and slow to 24% in 2027.