Barclays raises target, estimates 11% gain for S&P 500 by end-2026

(Reuters) -Barclays strategists raised their year-end 2026 expectation for the S&P 500, implying an 11.4% gain from the benchmark's Wednesday close, citing strength in megacap technology along with an improving monetary and fiscal backdrop despite low growth. 

Barclays equity strategists led by Venu Krishna wrote in a research note issued on Wednesday that they now estimate the benchmark index will end next year at 7,400, up 5.7% from its previous target, which was 7,000. The new target is 11.4% above the S&P 500's close at 6642.16 on Wednesday. 

The strategists also raised their 2026 earnings per share (EPS) target for the S&P 500 to $305 from $295, as they see technology earnings growing faster than broader Wall Street expectations as "megacaps continue to execute in a low macro growth environment and with the AI race showing no signs of slowing."

But, excluding technology, they see a downside to consensus EPS estimates "as inflation and unemployment tick higher" compared with this year, "weighing on overall activity and consumption."

They wrote that Federal Reserve interest rate cuts are constructive for valuations, particularly in cyclical and growth equities.

But while the strategists are assuming that unemployment stays "within range of the neutral rate," they noted that a sharper downturn is the biggest near-term risk.

While "worsening of tariffs are likely off the table," they cautioned that some price pressures are already "in the pipe" and have yet to hit, with consumer sentiment already at multi-year lows.

The strategists also cautioned that U.S. midterm election years tend to bring weaker equity returns. 

(Reporting by Sinead Carew; Editing by Stephen Coates)