Wall Street voices singing in unison about the bullishness of the US stock market in 2026! With AI and interest rate cuts in resonance, there is hope for a four-year continuous rise, but the high consensus may become a hidden concern.

As the end of the year approaches, institutions have almost completed their forecasts for the US stock market in 2026. Wall Street's target points for the S&P 500 index in 2026 are concentrated in the range of 7100-8100 points, with an average target point of 7490 points, which represents about an 8% increase from the closing point on Wednesday. With a high probability of a rise in US stocks this year, if the trend in the US stocks in 2026 follows the predictions, it would be the fourth consecutive year of an upward trend in the US stock market. Wall Street generally expects that the AI boom and the Fed's interest rate cuts will continue to drive the S&P 500 index higher in 2026. Earnings growth of companies will also support the rise in US stocks, but also warns that inflation, high valuations, and tariff tensions could lead to a market correction. Furthermore, Wall Street also predicts that global economic growth will show resilience in 2026. According to estimates from various institutions, global GDP growth rates should be between 2.4% and 3.3%, while US GDP growth rates should be between 1.7% and 2.4%. Wall Street is generally optimistic about the US stock market in 2026 Several top Wall Street investment banks have already released their forecasts for the S&P 500 index in 2026. Although there are differences in target points, the general consensus is that, driven by continued investment in AI, a shift to loose monetary policy, and the expansion of profit growth, US stocks are expected to continue their upward trend. J.P. Morgan, led by Dubravko Lakos-Bujas, has set a target of 7500 points for the S&P 500 index at the end of 2026, stating that this benchmark index is expected to exceed 8000 points in the next year if the Fed continues its interest rate cuts. J.P. Morgan's forecast for the S&P 500 index reaching 7500 points in 2026 is mainly based on the expected earnings growth of 13% to 15% over the next two years. In the base scenario assumption, J.P. Morgan predicts that the Fed will cut interest rates twice more, followed by a long pause. The bank believes that continued improvements in inflation will prompt the Fed to increase the intensity of interest rate cuts, which will push the S&P 500 index to climb to 8000 points and above. J.P. Morgan stated in a client report, "Despite concerns about an AI bubble and valuation pressure in the market, we believe that the currently high PE ratio reflects expectations of super-trend earnings growth, a wave of AI capital expenditures, increased shareholder returns, and expectations of loose fiscal policy (i.e. the 'Bigger and Better Act')." "More importantly, the profit benefits brought about by relaxed regulation and the expansion of productivity improvements related to AI, have not been fully recognized by the market." Deutsche Bank has set a target of 8000 points for the S&P 500 by the end of 2026, and its confidence is based on its expectation of "diffusion" of profit growth. Deutsche Bank's stock strategy strategist predicts that the earnings per share of the S&P 500 index will grow significantly by 14% to $320 next year. The bank believes that the growth momentum brought by AI will expand beyond the "seven giants" of US stocks to more broader market sectors such as financial stocks and cyclical sectors, thus driving a more comprehensive bull market. Morgan Stanley strategist Michael Wilson also holds an optimistic view, forecasting that the S&P 500 index will rise to 7800 points in the next year. Michael Wilson believes that the recent market sell-off is nearing its end, and any short-term weakness is an opportunity to position for a bullish trend in 2026. He expects that the Fed's interest rate cuts will support the stock market, and AI technology will drive corporate efficiency improvements. His strategy team is particularly bullish on non-essential consumer goods, healthcare, financial, industrial sectors, and small-cap stocks. Citibank predicts in its 2026 US stock market strategy outlook report that 2026 will be a "continued but volatile bull market." Based on widened corporate earnings growth and deepening AI themes, the bank sets a benchmark target of 7700 points for the S&P 500 index at the end of the year, and an optimistic scenario target of 8300 points, reflecting a higher earnings growth trajectory and valuation level; a pessimistic scenario target of 5700 points, corresponding to situations where fundamentals fall short of expectations and valuations compress. Citibank believes that the tailwind for AI investments will continue, but the performance differentiation within the promoters and users of this technology will remain a long-term dynamic. The core theme would be the broadening of growth beyond this group, including extensive participation across sectors within the S&P 500 index, as well as the rise of US midcap stocks. UBS Global Research released a report stating that the uptrend in US stocks driven by AI is expected to continue until 2026, with the bank setting the end-of-year target for the S&P 500 index next year at 7500 points. The core logic is that corporate earnings are expected to maintain strong growth, and the highly concentrated but resilient technology sector will continue to contribute to gains. The report also pointed out that although there are concerns in the market about bubble risks and the valuation of AI-related stocks, the actual impact of such concerns on the market is expected to be limited. HSBC also set a target of 7500 points for the S&P 500 index at the end of 2026, and expects that under the driving force of the core AI investment boom, the index will achieve double-digit gains for the second consecutive year. Nicole Inui, head of stock strategies for HSBC Bank in the Americas, said that with the support of "macroeconomic stability, easing policy uncertainty, and AI investment boom," the earnings per share of constituent companies of the S&P 500 index are expected to grow by 12%. Barclays expectation for the end of 2026 for the S&P 500 index is 7400 points, and although macroeconomic growth is weak, large tech stocks are performing well, and the monetary and fiscal environments are continuously improving. The bank's stock strategy team pointed out that the latest target points have been raised by 5.7% from the previously set 7000 points, while the earnings per share estimate for the S&P 500 index in 2026 has been raised from $295 to $305. They believe that in a low-growth macroeconomic environment, large tech stocks will continue to operate steadily, and the competitiveness in the AI field shows no signs of cooling down, thus the profit growth rate in the technology sector will exceed the general expectations on Wall Street. In contrast, Bank of America Merrill Lynch has given a year-end target of only 7100 points for the S&P 500 index in 2026. BofA strategists expect that the earnings per share of the constituent stocks of the S&P 500 index will grow by about 14%, but the index itself is expected to rise by less than 3%. This combination of strong earnings and moderate index gains indicates that the economy is performing well, but valuations are already high, so it cannot be expected to boost returns through significant PE expansion. Regarding the AI bubble concerns that the market generally has, Bank of America points out that AI investments have begun to make substantial contributions to the US GDP and will continue to grow in 2026. According to an analysis of historical bubble cycles, the US technology sector is currently in a relatively healthy valuation range and has not shown signs of speculative overheating typical of bubble periods. However, it is worth mentioning that Steve Sosnick, Chief Strategist at Interactive Brokers, has set a year-end target of 6500 points for the S&P 500 index in 2026. This forecast implies a decrease of about 6% from the current level of the index, which is much more cautious compared to the bullish forecasts of other major Wall Street banks. The strategist elaborates on his contrarian investment view and cites historical trends to justify the reasonableness of his conservative strategy. Sosnick points out, "There have only been two bear market years in history, both of which occurred in the second year of a presidential term," using the example of the "volatility doomsday" event in February 2018 to illustrate such market turmoil in these cycles. He also expresses concern about new Fed chairs often facing tests in the early years of their tenure, citing historical cases such as Alan Greenspan (who faced the 1987 stock market crash shortly after taking office) and Ben Bernanke (who faced the financial crisis early in his term), stating that "new Fed chairs typically experience market tests around their first year in office." Regarding the current AI boom, Sosnick questions its sustainability. He warns that if the leading industries that have driven the recent uptrend experience a setback, it will be difficult to make up for the losses through sector rotation alone, as "these companies have driven the market sharply higher, but if they experience any setback, even just a stagnation, it will take massive capital rotation to offset the impact." At the same time, while major Wall Street institutions are bullish, they also point out many risks. First, the risk of a downturn in the US economy, with rising inflation and unemployment rates potentially dragging down overall economic activity and consumption; second, the impact of the US midterm elections, as historically midterm election years often lead to weaker stock market returns; third, the controversy over valuation bubbles, as the current stock market's expected P/E ratio is close to 22 times, well above the five-year average, with the key to whether the productivity gains from AI can be transmitted to non-tech companies. Is Wall Street too optimistic about US stocks? While Wall Street analysts are known for their bullish stance, their current optimistic expectations for the US stock market in 2026 are causing concerns among some market observers. Compiled data shows that the concentration of sell-side strategists' year-end target points for the S&P 500 index has reached the highest level in nearly a decade. Oppenheimer has given the highest forecast of 8100 points, while Stifel Nicolaus & Co. has given the lowest of 7000 points, but the difference in their expectations is only 16%. This highly consistent view is often seen in the market as a contrarian indicator - when all market participants are betting in the same direction, this imbalance is often self-correcting. Moreover, the risks in the current market are already evident: inflation rates are still above the Fed's target level, the market's expectations for loose monetary policy could be disappointed at any time; the unemployment rate has been steadily climbing in recent months; and the massive investments in AI have not yet resulted in actual profits. Optimists believe that the core logic behind this bullish outlook is that economic growth will drive corporate profits higher. They point out that tax cuts and deregulation policies will boost economic vigor, along with the expected Fed rate cuts, providing support for the market to rise. However, skeptics see this widespread optimism as a sign of market complacency. Steve Sosnick, Chief Strategist at Interactive Brokers, warns, "The predictably high degree of consensus and concentration makes me concerned. If everyone expects the same thing, then that expectation must already be reflected in current stock prices - especially when the logic behind the consensus is largely based on similar factors like rate cuts, tax cuts, and continuous dominance of AI." Greg Boutle, head of US stock and derivative strategies at French bank BNP Paribas, also noted, "The risk of the widespread optimism in the market today is that this sentiment is built on the momentum of the index continuing to rise. In my view, while the market rise is the most likely outcome, it also means that once external shocks occur, their impact will be further magnified." Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, tries to downplay these concerns. He states, "Rather than saying that consensus targets are leading indicators of market trends, it would be more accurate to say that market trends are leading indicators of consensus target adjustments. In my view, the target points given by strategists are just a concise way for them to express their bullish or bearish stance." Releasing forecasts for the S&P 500 index points is a long-standing tradition on Wall Street. Every year-end, from large investment banks to niche investment institutions, analysts will all present their own forecast numbers. However, these forecasts have always been known for being "wrong again and again." Piper Sandler's data shows that target points for the S&P 500 index often lag behind the actual performance of the index by about two months, and there are similar lag issues in predicting target prices of individual stocks.