Market watchers might not agree with how interest rates will impact the S&P 500 Index, but they’re still more optimistic about where stocks are headed than they were before.
Bank of America Corp.’s Savita Subramanian, among the top equity bears, raised her Street-low target for the benchmark, while flagging that it is still prone to interest-rate risks. With the S&P 500 more than 11% higher this year, Michael Purves, CEO and founder of Tallbacken Capital Advisors, does not see higher interest rates breaking the rally.
Subramanian, who is BofA’s head of US equity and quantitative strategy, upped her year-end forecast to 7,400 from 7,100, implying a 2.9% drop from where the S&P 500 closed on Monday. Her forecast remains one of the most bearish on Wall Street, based on a Bloomberg survey of more than 20 strategists. She expects the S&P 500 to hit 7,800 in the next 12 months, a mere 2.4% jump from the latest close.
Tallbacken’s Purves increased his year-end target to 8,500 from 7,400, reflecting “exceptional” earnings growth. The new target eclipses the current Street-high forecast held by Yardeni Research’s president and chief investment strategist Ed Yardeni, and predicts the S&P 500 will climb about 12% from Monday’s close.
US stocks declined on Monday as leaders of major artificial-intelligence companies called for development to be slowed down, clashing with the Trump administration and Wall Street. Treasury 10-year yields briefly jumped above 5% for the first time since 2023 on concerns about elevated oil prices, inflation and consequently higher borrowing costs hitting the US economy.
Investors are now awaiting the Federal Reserve’s interest-rate decision on Wednesday, with swap traders largely pricing in a quarter-point hike.
Earnings Growth
Subramanian remains cautious on inflation risk and interest-rate hikes from the Fed, noting that any catalyst pushing financing costs higher from tight levels could “hasten pain.”
She also says stocks are “overdue for a pullback.”
That’s because there has only been one 5% pullback in 2026, which happened in March, whereas there are typically three per year, Subramanian said, adding that 50% of the strategist’s bear-market signposts have been triggered.
For Purves, the equity rally has “strong legs.” He also pushes back on the fear that interest-rate changes will bring earnings down, saying there’s minimal correlation between the two.
Ultimately, earnings growth is “exceptional, durable and broad-based,” Purves said. “Combined with moderate price-to-earnings expansion, the S&P 500 can easily trade to the 8,500 region, perhaps higher.”
Subramanian is similarly optimistic about earnings growth. In addition to touting productivity as the long-term bull case for the S&P 500, she says that earnings are “not the problem.” She sees earnings per share growth of 33% in 2026 and 12% in 2027, “with growth outpacing what macroeconomic forecasts would suggest, supported by AI capital expenditure, manufacturing and productivity.”
She is also less concerned about a potential blue sweep in the midterm elections this year challenging artificial-intelligence spending, noting the buildout is more driven by state governments in red states.
The tweaks to the targets follow forecast hikes by others on Wall Street. JPMorgan Chase & Co. strategists led by Dubravko Lakos-Bujas raised their view on the S&P 500 to 8,000 points in August, while Yardeni raised his to 8,400 soon after.
Written by: Emily Forgash and Joel Leon @Bloomberg
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