Barclays lifts S&P 500 target on continued earnings strength

Barclays has raised its year-end 2026 S&P 500 target to 7,950 from 7,800 and held its 2027 target at 8,800, citing a strong second-quarter earnings season led by technology companies.

The bank also lifted its fiscal 2026 earnings-per-share estimate to $365 from $337 and its fiscal 2027 estimate to $414 from $389. Its base case assumes EPS growth of 30.8% in 2026 and a price-to-earnings multiple of 21.8 times.

The upgrade follows a quarter in which S&P 500 headline EPS rose more than 50% year over year, or 29.3% excluding one-time items, on 13.3% sales growth. Big Tech led the advance with 35% EPS growth, up from 30% in the prior quarter, while the rest of the technology sector grew 88%.

Strategists led by Venu Krishna noted that 86.2% of companies beat consensus estimates, above the 75% long-run median since 1998. Still, they said "markets still penalized misses much more heavily than they rewarded beats this quarter," pointing to a high hurdle rate given elevated and rising yields.

Within Big Tech, Alphabet and Amazon drove most of the upside surprise, while Meta missed expectations. Barclays estimates hyperscaler capital expenditure will exceed $1.1 trillion in 2027, a 67% year-over-year increase, with Alphabet and Amazon the largest contributors and Meta close behind.

The strategists said their valuation assumptions remain "deliberately conservative" despite the improved earnings outlook. Their sum-of-the-parts framework assigns a 23.0x multiple to Big Tech, 22.0x to the rest of the technology sector, and 21.0x to the remainder of the index for 2026. "The result is that earnings do most of the heavy lifting in our target increase," they wrote.

Barclays' 2026 bull and bear cases stand at 8,350 and 6,750, respectively, while the 2027 bull and bear cases are 9,800 and 7,800.

The bank downgraded its view on the Utilities sector to Neutral from Positive, citing regulatory challenges including "failure to advance meaningful wildfire liability reform in California, and bipartisan pushback against data center permitting in several U.S. states."

It remains Positive on Technology, Media, and Telecommunications (TMT) and Industrials, Negative on the Consumer complex, and Neutral on the remaining sectors.