Barclays has increased its year-end target for the S&P 500 to 7,800 from 7,650 and introduced a 2027 target of 8,800, reflecting a more optimistic earnings outlook even as investors face a more challenging market environment in the months ahead.
The bank said the outlook for equities remains mixed, with several competing forces influencing sentiment. “Equities remain choppy as peace talks stop and start, and questions linger around AI spend, funding and monetization, higher for longer rates, and consumer strength,” strategists led by Venu Krishna wrote.
According to Barclays, economic conditions continue to support a constructive stance on stocks. Labour market data remain resilient enough to ease recession concerns, although the same strength could delay monetary easing. The team also noted that cost pressures are beginning to build again but have not yet reached levels that would threaten the broader expansion.
Even so, “the balance of risks still leans constructive,” the strategists said.
Barclays raised its 2026 earnings-per-share forecast for the S&P 500 to $337 from $321. The estimate remains slightly below the broader market consensus of $341 but implies annual earnings growth of roughly 21% compared with the bank’s estimate of $279 for 2025.
The revision reflects stronger-than-expected first-quarter earnings, inflation-driven support for nominal revenue growth and continued strength across industrial sectors. The bank also introduced a preliminary 2027 EPS forecast of $389, modestly below the Street estimate of $398.
The higher earnings outlook was the primary reason behind the increase in the S&P 500 target. At the same time, Barclays modestly reduced its valuation assumptions, assigning a baseline valuation multiple of 26 times earnings to major technology companies, down from 27.5 times previously.
The adjustment reflects ongoing uncertainty surrounding the scale of artificial intelligence investment, funding requirements and the timing of future returns. Across the broader index, Barclays is applying a blended valuation of 23 times projected 2026 earnings.
“The equity bull case remains intact, but earnings and AI capex visibility must do more of the work as Fed support fades and positioning is less able to absorb disappointment,” the strategists said.
Looking ahead, Barclays identified several risks for the second half of the year, including renewed inflation pressures, a potentially narrower path for Federal Reserve policy under its new leadership and signs of weakening consumer spending.
The bank remains bullish on long-term AI investment trends, forecasting that total hyperscaler capital expenditures will surpass $1.1 trillion by 2028, approximately 26% above current consensus estimates. However, analysts warned of “a growing mismatch between internally generated cash flow and projected capital requirements.”
On sector positioning, Barclays downgraded Financials to Neutral, citing concerns around private credit, regulatory pressures and potential disruption from AI. Healthcare was upgraded to Neutral as analysts believe the majority of earnings downgrades have already been reflected in valuations.
The bank continues to favour the TMT, Industrials and Utilities sectors, while maintaining a Negative view on Consumer-related stocks, where it expects higher inflation and slowing income growth to create “lagged pressure in 2H.”