S&P 500 Dips at Open, As Year End Target Raised

The S&P 500 is opening flat today, before dipping 0.1% as PCE came in hot, and tensions in the Middle East continue.

The markets are also coming in off the back of Goldman Sachs raising its year-end S&P 500 target to 8,000 from 7,600, joining Morgan Stanley and Deutsche Bank in forecasting a 17% total return for 2026 as artificial intelligence infrastructure spending drives exceptional earnings momentum across the benchmark index.

The S&P 500 came in off a record close at 7,519, already up nearly 10% year-to-date before Goldman’s upgrade was announced. The new 8,000 target implies approximately 6-7% further upside from current levels, with the index trading at roughly 22 times forward earnings. Morgan Stanley’s more bullish 8,300 target represents the upper end of major Wall Street strategists’ forecasts, while Deutsche Bank also sits at 8,000, creating a consensus view around mid-to-high single-digit gains through year-end.

Why Raise Targets Now?

Goldman’s strategists upgraded their 2026 earnings-per-share forecast for the S&P 500 to $340, representing 24% year-over-year growth, following an exceptionally strong first-quarter earnings season that saw widespread upside surprises. The firm pencilled in a further 13% EPS increase for 2027, lifting that estimate to $385. The revised projections reflect a fundamental shift in how the bank views the durability of the current profit cycle, with AI infrastructure beneficiaries expected to contribute roughly half of the S&P 500’s earnings growth this year.

The upgrade marks a significant step-up from Goldman’s earlier 7,600 target and lower EPS assumptions in the low-$300s range. Companies tied to AI infrastructure—including semiconductor manufacturers, data-centre operators, cloud hyperscalers, networking equipment providers, and power and cooling suppliers—have emerged as the dominant incremental profit drivers, offsetting weakness in consumer spending and elevated cost pressures elsewhere in the economy.

Goldman emphasised that the rally has been powered by earnings growth rather than valuation multiple expansion, a distinction the firm views as supporting a more durable bull market. The S&P 500’s gains year-to-date have come almost entirely from improving fundamentals, with the forward price-to-earnings ratio holding relatively steady despite the index reaching successive record highs.

In Short

Goldman’s move to 8,000 crystallises the prevailing bull narrative around AI infrastructure as a transformative profit engine, backed by concrete earnings upgrades that distinguish this rally from purely sentiment-driven advances. Yet the firm’s explicit acknowledgement that valuation upside is capped and that macro uncertainties loom large suggests the risk-reward profile has become less asymmetric than earlier in the cycle.

Markets now face a narrower path to further gains, requiring AI capex to sustain its torrid pace while avoiding the policy missteps, growth scares, or thematic fatigue that could quickly unwind stretched positioning in the sectors driving half the index’s profit growth.

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