Wall Street sings in unison for a bull market in the year 2026! With the combination of AI and interest rate cuts, it is expected to rise for four consecutive years, but high consensus may pose hidden risks.

As the year-end approaches, institutions have mostly released their forecasts for the 2026 US stock market. Wall Street's target range for the S&P 500 index in 2026 is concentrated between 7100-8100 points, with an average target of 7490 points, representing an approximate 8% upside from Wednesday's closing price. With a high probability of the US stock market closing higher this year, if the 2026 stock market trend matches the forecast, it will mark the fourth consecutive year of gains for US stocks. Wall Street generally expects that the AI boom and Fed rate cuts will continue to drive the S&P 500 index higher in 2026, supported by corporate profit growth. However, they also warn that inflation, high valuations, and trade tensions could still trigger market corrections. Furthermore, Wall Street also predicts that global economic growth in 2026 will be resilient. According to various estimates, global GDP growth should be between 2.4% and 3.3%, with US GDP growth between 1.7% and 2.4%. Many top Wall Street investment banks have already released their outlooks for the 2026 S&P 500 index. While there may be differences in target points, the consensus is that with the ongoing AI investment wave, loose monetary policy, and profit growth expansion, US stocks are expected to continue their upward trend. JP Morgan's stock strategy team led by Dubravko Lakos-Bujas has set a target of 7500 points for the S&P 500 index by the end of 2026. The bank predicts that with two more Fed rate cuts, this benchmark index could surpass 8000 points in the coming year. The forecast is primarily based on an expected earnings growth of 13% to 15% over the next two years. In a base scenario assumption, JP Morgan expects the Fed to cut rates twice more and then enter a long pause phase. The bank believes that ongoing improvements in inflation will prompt the Fed to increase rate cuts, pushing the S&P 500 index to climb above 8000 points. JP Morgan stated in a client report, "Despite concerns about an AI bubble and valuation pressure in the market, we believe that the currently high P/E ratios reflect the anticipated supertrend earnings growth, the capital spending boom in AI, the increase in shareholder returns, and expectations of loose fiscal policy (i.e., the 'Build Back Better Act')." "More importantly, the profit benefits brought about by relaxed regulation and the expanded scope of AI-related productivity advances have not yet been fully recognized by the market." Deutsche Bank has set a year-end target of 8000 points for the S&P 500 index in 2026, with confidence derived from its expectations of profit growth "diffusion." The bank's stock strategy team predicts that the S&P 500 index will see significant earnings growth of 14% to $320 per share next year. The bank believes that the growth momentum driven by AI will expand beyond the "big seven" US tech giants to a wider market segment like financial and cyclical sectors, fueling a broader bull market. Morgan Stanley strategist Michael Wilson is also optimistic, expecting the S&P 500 index to rise to 7800 points in the next year. Wilson believes that the recent market sell-off is nearing its end, and any short-term weakness is a good opportunity to position for a bullish 2026. He predicts that the Fed's rate cuts will support the stock market, while AI technology will drive efficiency improvements for businesses. His strategy team is particularly bullish on non-essential consumer goods, healthcare, finance, industrial sectors, and small-cap stocks. In its 2026 US stock strategy outlook report, Citigroup predicts a "continuously but volatile bull market" for 2026. Based on the widening of corporate profit growth and deeper AI themes, the bank sets the benchmark year-end target for the S&P 500 index at 7700 points, with an optimistic scenario targeting 8300 points based on an EPS expectation of $320 per share, reflecting a higher earnings growth indication. The pessimistic scenario targets 5700 points, corresponding to a situation where fundamentals fall short of expectations and valuations compress. Citigroup believes that the tailwinds in the AI field will continue, but the performance differentiation within the enablers and applicators of this technology will be a long-term dynamic. Beyond this group's growth broadening will be the core theme, encompassing comprehensive participation not only within the S&P 500 sectors but also including the rise of US mid-cap stocks. UBS Global Research department has set the year-end target for the S&P 500 index at 7500 points, reflecting the AI-driven uptrend continuing into 2026. The bank's core logic is that corporate earnings are expected to maintain strong growth, with the highly concentrated yet resilient tech sector continuing to contribute gains. The report also points out that while there are concerns in the market about bubble risks and AI-related stock valuations, the actual impact of such concerns on the market is expected to be limited. Similarly, HSBC has set a year-end target for the S&P 500 index at 7500 points, expecting the index to achieve double-digit gains for the second consecutive year under the core driving force of the AI investment wave. Nicole Inui, head of equity strategy for HSBC Bank Americas, states that with the support of "macroeconomic stability, alleviated policy uncertainty, and the AI investment wave," the earnings per share of S&P 500 index constituents are expected to grow by 12%. Barclays expects the S&P 500 index to reach 7400 points by the end of 2026, stating that while macroeconomic growth is weak, large-cap tech stocks are performing strongly and the monetary and fiscal environment is improving. The bank's stock strategy team points out that the latest target has increased by 5.7% compared to the previous 7000 points, and raises the S&P 500 index EPS forecast for 2026 from $295 to $305. They believe that in an environment of low macroeconomic growth, large-cap tech stocks continue to operate steadily, and the competition intensity in the AI field shows no signs of cooling, resulting in tech industry earnings growth exceeding the general expectation on Wall Street. In contrast, Bank of America has given a year-end target of only 7100 points for the S&P 500 index in 2026. The bank's strategists expect the earnings per share of S&P 500 index constituents to grow by about 14% in 2026, but they only project a less than 3% increase in the index itself. This combination of strong earnings and moderate index gains indicates that the economy is performing well but valuations are already sufficiently high, and cannot be expected to push returns higher through significant PE expansion. Addressing the market's concerns about an AI bubble, Bank of America points out that AI investments are already making substantial contributions to the US GDP and will continue to grow in 2026. Based on an analysis of historical bubble cycles, the US tech sector is currently in a relatively healthy valuation range, showing no signs of speculative overheating typical of bubble periods. However, it is worth mentioning that Interactive Brokers' Chief Strategy Officer Steve Sosnick has set a year-end target of 6500 points for the S&P 500 index in 2026, which implies a drop of about 6% from the current level, and a much more cautious outlook compared to the bullish forecasts of other major Wall Street banks. The strategist outlines his contrarian investment viewpoint 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 occurring in the second year of a president's term," using the "volatility apocalypse" event in February 2018 as an example of market turmoil during such periods. He also expresses concern about the challenges faced by new Fed chairs at the beginning of their terms, citing historical cases like Alan Greenspan (facing the 1987 stock market crash shortly after taking office) and Ben Bernanke (facing the financial crisis early in his term), stating that "new Fed chairs typically face market tests in their first year in office." Regarding the current AI boom, Sosnick doubts its sustainability. He warns that if the dominant industries driving recent gains experience a pullback, it will be difficult to offset the impact solely through sector rotation, stating, "These companies have driven the market rapidly higher, but if they experience any pullback, even just a stagnation, a huge amount of fund rotating will be needed to counter the effects." At the same time, while major Wall Street institutions are bullish, they also highlight many risks. First, the downside risks to 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, which historically have resulted in weaker stock market returns in midterm election years. And third, the controversy over valuation bubbles, with current stock market P/E ratios close to 22 times, far above the five-year average, it is crucial to see if the productivity gains from AI can transmit to non-tech businesses. When all of Wall Street is bullish, is it a danger signal for the US stock market? While Wall Street analysts are known for their bullish stance, the current optimistic expectations for the 2026 US stock market are causing some market observers to worry. Compiled data shows that the sell-side strategists of major institutions have given year-end target points for the S&P 500 index, with a concentration level reaching its highest level in nearly a decade. Oppenheimer has given the highest prediction of 8100 points, while Stifel Nicolaus & Co. has given the lowest at 7000 points, but the difference in 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, such imbalance tends to self-correct. Moreover, the risks in the current market are already evident: inflation rates are still above the Fed's target level, market expectations for loose monetary policy may be disappointed at any time, and the soaring investment in AI has yet to actual profits. Optimists argue that the core of this bullish logic is that economic growth will drive corporate earnings higher. They point out that tax cuts and deregulation policies will boost economic vitality, coupled with expected Fed rate cuts of 25 basis points, providing support for upward market movements. However, pessimists interpret this widespread optimism as a manifestation of market complacency. Steve Sosnick, Chief Strategy Officer at Interactive Brokers, warns, "I am concerned about the high degree of unanimity and concentration in forecasts. If everyone expects the same thing, those expectations are already reflected in current stock prices especially when most of the consensus logic is based on similar arguments such as rate cuts, tax cuts, and continued dominance of AI." Greg Boutle, head of US equities and derivatives strategy at BNP Paribas, also states, "The risk of the current market's widespread optimism lies in the fact that this sentiment is built on the inertia of a continually rising index. In my view, while market upside is the most likely outcome, it also means that any external shocks will have a further magnified impact." Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, attempts to downplay these concerns. He says, "The market consensus target is not a leading indicator of market trends, but rather a leading indicator of consensus target adjustments. In my opinion, the target points given by strategists are just a concise way of expressing their long or short views." 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 firms, analysts will come out with their own forecast numbers. However, these forecasts are famous for being "consistently wrong." Piper Sandler's data shows that S&P 500 index target points often lag behind the index's actual performance by about two months, and individual stock target price forecasts also have the same lagging issue.