If the analysts are right, the S&P 500 is on track to break an all-time high

It was the report season of the second quarter that formed a more optimistic consensus towards the end of the year, especially among the major investment houses. Most of them point to signs that the massive investments in AI are starting to generate demand, revenue and profits.

Unusual Earnings Surprise: The Upheaval of Reports

According to FactSet, in the current reporting season the companies included in the S&P 500 index showed an increase of about 50% in profits compared to the corresponding quarter – the fastest pace since the second quarter of 2021. About 86% of the companies that have already published reports surpassed profit forecasts, compared to an average of about 78% in the last five years. All in all, the companies exceeded profit forecasts by about 29% on average – a particularly unusual profit surprise. The technology sector is expected to show a profit growth of about 70%, but eight of the 11 sectors in the index are also expected to register double-digit growth in profits.

The most prominent sign of a change in tone comes from JP Morgan, which for the second time in two months raised its year-end target for the S&P 500, this time to 8,000 points, about 3.5% above the current level of the index. The bank says that the results of the second quarter provide evidence that the huge capital expenditures of the technology giants are starting to pay off. The growth in the cloud and the increase in the order backlog at the technology giants, Amazon, Alphabet and Microsoft, reinforce, according to them, the assumption that the demand for AI infrastructures will continue to grow. “As the high order backlog turns into revenue that will be recognized in reports, cloud growth is expected to remain well supported, thereby confirming the increase in capital spending on AI,” they wrote. The bank expects that investments in AI will continue to rise, with the technology expected to make up more than half of the total capital expenditures this year, which they estimate will amount to approximately 1.5 trillion dollars.

and J.P. Morgan is not alone. Morgan Stanley also raised its forecast, and it now expects the S&P 500 to reach 8,000 points at the end of the year, compared to a previous target of 7,800, and to 8,300 points within 12 months. The bank states that the main reason is the strength of the report season. The bank predicts that profit growth will continue to expand later this year, and will not remain concentrated in the limited group of technology giants. According to the strategist Mike Wilson, the fact that the profits continue to be a good surprise even against the background of the war, the geopolitical tensions and the concerns surrounding the AI ​​investments, strengthens the claim that the rally in the American stocks is not based only on liquidity and momentum, but receives increasing support from the economy and the business results.

Deutsche Bank also raised its profit forecasts to the index, and it now expects earnings per share of $358 in 2026 and $420 in 2027, compared to $342 and $390 in the previous forecasts, respectively. As with Morgan Stanley, the bank emphasizes that the improvement in profitability does not come only from the technology giants. All 11 sectors in the index are expected to show positive growth in profits in the second quarter, and eight of them are expected to register double-digit growth. Another figure that illustrates the change is the share of the technology giants in the growth of profits: according to the bank, the contribution of the mega-cap companies to the growth of the index’s profits dropped from 90% a year ago to 57% today. That is, Wall Street’s growth engine is becoming wider.

The forecast markets are joining the wave of optimism. Kalshi, the largest prediction market platform in the world, where traders price the probability of future events in real time, shows a probability of about 67% that the S&P 500 index will cross the 8,000 point mark during 2026. At the same time, the traders give a probability of about 33% that the index will also cross the 8,200 points mark this year.

The big question: is the market cheap or expensive?

But above the wave of optimism hovers as usual the question of price. When different indicators show an opposite picture. On the one hand, the Shiller profit multiplier (which measures the levels of the S&P 500 index in relation to the average of real profits over the last decade) is at a peak not seen since the peak of the dot-com bubble, just before the market collapsed by 50%. The current profit multiplier, which examines the value of the companies in the market compared to the profits they reported in the last year, is also at high levels (30). And despite these two indicators that indicate that the market is expensive, there is also an indicator that indicates that it is actually not expensive: the forward earnings multiple, which refers to the companies’ earnings forecasts, is 20, levels close to the long-term average of the S&P 500.

If the Wall Street bulls are right, and the S&P 500 continues to rise through the end of the year and closes 2026 with a double-digit return, it will be the fourth year in a row that it has done so. In fact, since World War II there has only been one other time when we have seen such a four-year streak – during the dot.com era of the late 1990s.