Capital Economics has upgraded its long-term forecast for the S&P 500, expecting the benchmark U.S. stock index to climb to 7,000 by the end of 2026, citing a more favorable market environment and a cooling of trade tensions.
In a note published Thursday, the firm revised its prior estimates, adjusting its end-2025 target to 6,250, slightly below a previously projected 7,000, but lifting its end-2026 forecast from 6,000 to 7,000. The changes reflect shifting sentiment after recent market turbulence and a reassessment of the global economic backdrop.
“Market conditions appear more constructive now than during the height of the trade conflict,” the analysts noted, while also acknowledging that risks remain. They pointed to a recent temporary truce in the trade standoff, suggesting that while the agreement only halts tariffs for 90 days, it may indicate a turning point in U.S.-China relations.
The firm emphasized that the bond market has played a critical role in influencing policymakers, particularly in restraining more aggressive trade measures. “The reaction of Treasury markets continues to serve as a check on extreme policy swings,” the note stated.
Despite the more upbeat tone, Capital Economics remained cautious about fully reverting to earlier bullish projections for 2025. Recent market volatility and concerns around fiscal stability have made investors more hesitant, the firm said.
“Following April’s sharp swings, we believe market participants will approach the rebound with greater skepticism,” the analysts added.
The report also flagged uncertainty in the tech sector, especially around artificial intelligence. The firm warned that emerging AI competition from China could pose challenges for dominant U.S. technology firms, independent of trade dynamics.
In summary, while Capital Economics is optimistic about equities in the medium term, it maintains a measured tone about the near-term outlook, particularly as macroeconomic and geopolitical factors continue to evolve.