Barclays, Stifel lift S&P 500 target to 7,800 on strong earnings outlook

Barclays and Stifel raised their year-end ⁠targets ⁠for the S&P 500 index ⁠to 7,800 on Tuesday, citing strength in corporate earnings.

The target is ​about 4.4% higher than the index’s last close of 7,472.79.

“The equity bull case remains intact, but earnings ‌and AI capex visibility must ‌do more of the work as Fed support fades,” Barclays analysts led by Venu Krishna ⁠said in ⁠a note.

The S&P 500 is up 9.2% so far this year, ​broadly driven by AI optimism, while the U.S.-Iran peace deal has also boosted investor sentiment.

The revised targets add to a growing wave of bullish calls from brokerages, with some expecting the index to cross ​the 8,000 mark. 

While Stifel equity market strategist Thomas Carroll also sees strong earnings as the primary catalyst for stocks to run higher, he also sees continued signs of a rotation out of megacap stocks that have been a primary driver for the run in stocks to record highs. 

“Stock concentration sits at ⁠40-year highs and peaking dispersion signals a rotation out of mega-caps into equal-weight indices,” Carroll said. 

With a U.S. economy that is “running hot,” Carroll prefers staying long investment cyclical sectors such as energy, industrials, materials and select semiconductors and computer hardware. 

⁠The ⁠Nasdaq and the S&P 500 ⁠closed at more than one-week lows on Tuesday, dragged down by ​sharp losses in semiconductor stocks as investors scrutinized growing debt-funded AI spending and braced for a ‌more hawkish U.S. Federal Reserve.

The ‌Dow ended slightly lower.

The Philadelphia SE Semiconductor index and the S&P 500 information tech ⁠sector index ⁠both fell.

Nvidia and Alphabet slid while chipmakers Intel, Marvell Technology and ​Advanced Micro Devices also fell.

“Some of the news lately about AI raises questions about all the spending that’s being done and the capex and ramping of the capacity for semiconductors,” said Thomas Martin, ​senior portfolio manager at Globalt.

Concerns over hyperscalers’ debt-funded AI spending have contributed to the ⁠selloff. ⁠Elon Musk’s SpaceX, which debuted ⁠this month, ​has joined a list of megacaps tapping the bond market to raise capital.

Shares of ​SpaceX rose, following losses ⁠in the last three sessions.

Memory chipmakers Micron Technology and SanDisk, among the best performers on the S&P 500 this year, fell.

Micron’s earnings results on Wednesday could offer clues on the outlook for the memory and AI chip sector after a searing rally this year.