Putting aside the noise of the tech stock plunge, what Barclays and Stifel see is strong earnings and the S&P 500 reaching 7800 points by the end of the year.

As the recent stock market continues to face selling pressure, both Barclays and Stifel, two Wall Street institutions, released reports on the same day raising their year-end target for the S&P 500 index to 7800 points by 2026, about 4.4% higher than the index's closing price on Tuesday. This contrarian bullish move has attracted widespread attention in the market. Chip stocks experienced a "bloodbath," and the AI investment logic faced reevaluation On Tuesday, the three major U.S. stock indexes collectively declined, with the semiconductor sector experiencing a large-scale sell-off. The Philadelphia Semiconductor Index fell sharply by 7.87%, with all components seeing a decline. In response, some market analysts pointed out that investors are reevaluating the AI investment boom driven by debt financing. Thomas Martin, a senior investment manager at Globalt, stated, "Recent news surrounding AI is raising market doubts: is such massive capital expenditure reasonable? Is semiconductor capacity expansion too fast? These questions are prompting investors to reassess their investment logic." At the same time, the VIX index, known as the Wall Street "fear gauge," surged over 12% to a more than one-week high, indicating a significant increase in market risk aversion. Barclays, Stifel contrarily raise target prices, optimistic about profit prospects Despite the heavy losses in tech stocks, Barclays and Stifel raised their target prices for the S&P 500 index based on strong corporate profit prospects. In a report, the Barclays analyst team led by Venu Krishna stated, "The bull market logic in the stock market remains intact, but with the fading support of the Federal Reserve policy, visibility of profit and AI capital expenditures needs to play a bigger role." Barclays raised its 2026 S&P 500 earnings per share forecast from $321 to $337 and for the first time gave a forecast of 8800 points for the index in 2027. Stifel's stock market strategist Thomas Carroll also views strong profitability as a major catalyst for the continued rise in the stock market. However, he also noted signs of continued rotation among mega-cap stocks. "Stock concentration is at a 40-year high, and peak dispersion signals show funds rotating from mega-cap stocks to equal-weight indices," Carroll stated. It is worth noting that the bullish camp on Wall Street continues to grow. Citigroup has already raised its year-end target for the S&P 500 to 8100 points, Morgan Stanley to 8000 points, Wells Fargo & Company to 7950 points. Evercore ISI even believes that the index could reach as high as 9000 points. Hawkish Fed and inflation shadow remain concerns However, the path to higher prices is not without obstacles. Barclays warned in its report that rising inflation concerns and a strong labor market have raised fears of Fed rate hikes, which could undermine stock market performance. At the June meeting, newly appointed Fed Chair Powell kept interest rates unchanged at 3.50%-3.75%, but his "debut" sent out a clear hawkish signal. The statement was significantly shortened, with forward guidance and dovish language omitted; the dot plot showed the median rate for 2026 rising to 3.8%, an increase of 40 basis points from March. According to LSEG data, traders are increasingly betting on the Fed hiking rates twice this year. In addition to the potential rise in borrowing costs, Barclays also noted lingering concerns in the market about massive AI investment and consumer spending, maintaining a "negative" rating on the consumer sector. However, the institution also stated that improving tech profit prospects and stronger industrial fundamentals are helping offset concerns about consumer spending. In terms of sector allocation, Barclays downgraded the financial sector to "neutral" and upgraded the healthcare sector to "neutral." Stifel's Carroll prefers long-term cyclically sensitive sectors, including energy, industrials, materials, and some semiconductor and computer hardware stocks. Currently, the market is closely watching Micron Technology, Inc.(MU.US), which is set to report earnings after the U.S. market closes on Wednesday. Analysts believe that its performance could provide important clues for the outlook of the storage chip and AI chip industries after experiencing significant growth this year. In addition, the Personal Consumption Expenditures Price Index (PCE), the Fed's key inflation indicator, to be released on Thursday, will also be a focal point for the market. As of the close on Tuesday, the S&P 500 index has accumulated an increase of about 9.2% year-to-date.