Panic? What panic? Barclays raises the S&P 500 target price

Investing.com - Despite a more fragile macroeconomic backdrop, Barclays remains optimistic about the outlook for the U.S. stock market, raising earnings and price targets for the S&P 500 and noting that the market has not shown signs of panic.

“Macro risks are rising (Middle East conflict, AI disruption, private credit pressures), but the U.S. still leads in nominal growth and long-term benefits driven by technology,” said a strategist led by Venu Krishna in a Tuesday report.

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The broker has raised its 2026 EPS forecast for the S&P 500 from $305 to $321 and increased the year-end target from 7,400 to 7,650, mainly driven by strong earnings. “We are more optimistic about profit prospects,” the strategist wrote.

The upward revision reflects robust guidance from tech companies, improved industrial activity, and resilience in nominal growth. These factors are expected to offset weaker growth outside the U.S. and the higher comparison base for consumer data later this year. Barclays noted that its new EPS forecast is roughly in line with market expectations of $322.

Regarding the upward revision of the year-end target, the strategist said it was “driven by stronger earnings fundamentals rather than valuation re-rating.”

“We are broadly lowering fair value multiples to reflect increased uncertainty around macro and AI outcomes,” they added.

Despite uncertainties, Barclays pointed out that the U.S. economy continues to show “persistent consumer strength” and a stable labor market, while AI-driven investments continue. The bank expects real GDP growth of 2.6% in 2026, with inflation remaining “sticky but well-anchored.”

Meanwhile, risk appetite is leaning downward. The strategist warned that the distribution of outcomes has shifted left, with a bear market target of 5,900 points, implying about a 15% pullback from recent highs. Elevated energy prices and private credit pressures could force the Fed into a dilemma between inflation and growth.

However, positioning data shows limited market panic. “Pure long-only funds have reduced exposure, hedge funds have modestly decreased overall exposure, and systemic risk appears more balanced,” the strategist noted.

At the same time, options activity has shifted toward macro concerns, but the team said “there is no sign of panic,” and ample dry powder remains on the sidelines.

“If sentiment worsens, we could enter an inflation volatility feedback loop, with more near-term downside pressure potentially released through actual capital outflows and systemic selling,” the strategist added.

In terms of sectors, Barclays upgraded the industrial sector to positive, citing manufacturing momentum and AI-related demand, while upgrading materials and energy to neutral due to supply disruptions supporting prices. Technology and financials remain key pillars of earnings growth, with AI investments continuing to serve as primary drivers.

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