The S&P 500 at 7400 or 8000? Why the Future of Stocks Is So Murky. -- Barrons.com

By Martin Baccardax

Wall Street strategists are split over the path for stocks into the end of the year, and the biggest debate is tied to the bond market and earnings growth.

Wall Street's most prominent bear has bumped her end of year price target for the S&P 500 modestly higher, but still expects declines for the benchmark given concerns tied to inflation, Federal Reserve rate hikes, and overall earnings quality.

Another strategist, however, thinks stocks will continue to power higher despite Fed tightening and the relentless move higher in Treasury bond yields, thanks largely to the health of corporate profits and balance sheets.

The split underscores the market's broader uncertainty heading into the final months of the year, as well as the fact that stocks have seen only modest advances since the S&P 500 first topped the 7500-point mark in mid May.

Savita Subramanian, head of U.S. equity strategy at Bank of America, nudged her 2026 price target for the S&P 500 300 points higher, taking it to 7400 points, in a note published Monday. That would represent a 2.9% decline from Monday's closing level of 7619.98. She also increased her rolling 12-month target from 7600 to 7800, implying a return she describes as "nothing to write home about."

She writes that she is "encouraged by the fundamental backdrop," but explains that "worsening liquidity, geopolitical tensions, sticky inflation and unfavorable seasonal trends keep us cautious on equities in the near term."

She adds that even though earnings could remain strong in 2027, "history suggests returns tend to slow when earnings growth remains above trend but decelerates, as we expect in 2027."

Indeed, LSEG forecasts see 2026 earnings growth in the region of 35%, a staggering tally into the fourth year of the current bull market, but predict a notable drop to around 15.3% the following year.

Meanwhile, Ben Snider, chief U.S. equity strategist at Goldman Sachs, is holding onto his 8000 year-end price target for the S&P 500, which suggests a 5.1% gain from current levels. His 12-month target is 8300.

"Equities typically struggle when the Fed starts to hike rates, but we expect the bull market to continue," he says in a note published Monday. He notes that on average, the S&P 500 falls around 2% in the three months after the first hike, but rises over 9% in the full year following the first hike.

"The medium-term impact of Fed tightening on equities will depend on how tightening affects earnings growth, which is the most important driver of stocks," he adds.

Interestingly, Snider says there is a divergence between equity market volatility, which is tied to short-term Fed-controlled rates, and broader equity market performance, which is closely related to longer-dated rates.

"Stocks typically struggle to digest sharp increases in bond yields," he says. "The speed of the rate moves during the last few weeks helps explain why stocks struggled to digest those changes."

Snider suggests that a 10-year Treasury yield in the region of 5.05% or higher over the coming days could trigger concern.

The 10-year yield briefly rose above 5% on Monday, having jumped nearly 25 basis points over the past week.

"Higher rates still look more like a strong-growth story than a fiscal- sustainability one," says Morgan Stanley chief equity strategist Mike Wilson. "Meanwhile, the term premium remains contained alongside market expectations of fiscal risks. This is supportive of our view that high quality equities remain a valuable inflation hedge over the intermediate-term."

Wilson nonetheless warns of "unexpected" shocks tied to the recent surge in oil prices.

These, he said, could turn "what currently looks like a more modest policy adjustment that is pre-emptive in nature into what would be viewed as a more prolonged hiking cycle in this risk scenario," potentially leading to a broader market correction.

Wilson's year-end S&P 500 target is 8000 as well. That's slightly above the average target of 7951, per Bloomberg data.

A further level of equity market concern on Monday was tied to concerns about the pace of AI development and the potential that the frontier model companies like Anthropic and OpenAI will slow development for safety reasons.

Snider also notes that long-duration stocks, or those with "high growth rates and low current profits," are vulnerable to higher bond yields, which lower the present value of future cash flows.

"Like the broad Info Tech sector, AI stocks have exhibited a modest negative correlation with real yields," he says.

Subramanian at BofA also notes that around 27% of the earnings expected from the S&P 500 next year will come from just five stocks - Nvidia, Alphabet, Micron, Microsoft, and Apple - all of which are tied to the AI investment trade in one form or another. Semiconductor stocks are expected to contribute over 60% of 2027 earnings growth.

"We believe the capex cycle has more room to run, but the growing dependence on a highly interconnected AI complex amplifies two-sided risks," she cautions.

These cross-currents have some investors treading cautiously into this week's Fed decision and beyond.

"We've had a big multiyear run in stocks, a lot of which is due to AI, and yields are approaching multidecade highs, so we might be due for a bit of a pullback," says John Belton, portfolio manager at Gabelli Funds. "Right now, I'm lukewarm on the outlook for stocks."

A lot of others are, as well.

Write to Martin Baccardax at martin.baccardax@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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September 14, 2026 16:14 ET (20:14 GMT)