HSBC and Yardeni raise the year-end target for the S&P 500, mainly due to strong earnings

Investing.com - HSBC and investment research firm Yardeni Research both raised their year-end target prices for the S&P 500, mainly driven by better-than-expected earnings growth during the current first-quarter earnings season.

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HSBC raised its S&P 500 target price for the end of 2026 from 7,500 points to 7,650 points, and increased its 2026 earnings per share (EPS) forecast by 8% to reflect the latest quarterly results. The bank currently expects 2026 EPS growth of 20%, or $325, with the technology sector and the “Magnificent 7” remaining the main drivers.

Yardeni’s outlook is more optimistic. After market-wide earnings expectations surpassed its previous optimistic forecast, the firm sharply raised its year-end target from 7,700 points to 8,250 points.

In the report, Yardeni wrote: “We have never seen the market’s earnings expectations for the current and upcoming years rise so rapidly in such a short period. The result is an accelerated rise in the stock market driven by earnings.”

Yardeni raised its 2026 and 2027 EPS forecasts from $310 and $350 to $330 and $375, respectively.

Both institutions pointed out that the current rally is concentrated in a few stocks, which is both a risk and an opportunity. HSBC noted that although the index repeatedly hits new highs, most individual stocks are still below their 52-week highs, meaning there is still room for further gains if market participation expands.

HSBC also listed several possible paths for the S&P 500 to break through 8,000 points, including: re-pricing of the technology sector driven by AI and tech IPOs, setting higher valuation benchmarks; geopolitical tensions easing, leading to a rebound in lagging sectors; widespread profit margin improvements driven by AI efficiency gains across industries; and a macro environment returning to a “Goldilocks” state as long-term interest rates decline.

HSBC strategists Nicole Inui and Alastair Pinder wrote: “We believe each of these potential paths could contribute 100 to 700 points of gains to the S&P 500.”

The two strategists also noted that the dominant position of the tech sector in the index makes market sentiment toward this sector one of the most important sources of volatility.

“We also believe that long-term interest rates are crucial. Although the market has somewhat decoupled from long-term rate movements, the impact of the rate environment may become more pronounced as tech companies seek financing for capital expenditures,” they added.

The technology sector and the “Magnificent 7” currently account for over half of the total market value of the S&P 500 and more than 40% of the index’s earnings. However, valuations have retreated from previous peaks, with the six largest members of this group currently valued at an 8% discount to their five-year average.

Yardeni increased the subjective probability of its so-called “Roaring 2020s” continuing from 60% to 80%, incorporating the previous 20% scenario of accelerated gains.

The firm maintained a 20% probability for recession and bear market, and believes that “any market downturn will be a good buying opportunity and will not trigger a recession or bear market like the tech bubble and crash of 1999-2000.”

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