Returns Will Need To Be Earned

Our US Equity strategists are raising their 2026 S&P 500 target to 8100 from 7700. The increase is driven by a higher EPS forecast as the economy re-accelerates and earnings broaden beyond a narrow set of hyperscalers. The upgrade reflects a stronger-than-expected first quarter and an improving economic backdrop, with consensus forward 12-month EPS growth running at 20%, well above the 8% threshold below which realized earnings have historically tended to turn negative. 

At the same time, our colleagues are trimming their year-end trailing PE assumption to 24.5 from 25. Higher rates, lingering inflation, and a coming IPO wave are likely to weigh on valuation, leaving earnings growth rather than multiple expansion as the source of further returns. Earnings strength remains the core of the constructive view, with revisions positive across the board. 

Concerns over AI-related capex have yet to materialize: demand is strong, capacity does not appear excessive, cash flows are mostly robust, and leverage is falling rather than rising. Our colleagues see duration, not valuation, as the primary risk, given higher discount rates, inflation uncertainty, a positive stock-bond correlation, and the looming supply of equities.