EBC Research Institute Hot Topic Analysis | Repeated Target Upgrades: Are the Bullish Forces Back in U.S. Equities?

Reports indicate that Trump seeks to impose tariffs of at least 15%–20% on the EU—higher than the anticipated 10%—yet the market impact has been minimal. The S&P 500 is currently trading near its all-time high. An optimistic start to earnings season has also helped temporarily ease concerns over tariffs. FactSet data shows that approximately 83% of S&P 500 companies reporting earnings so far have exceeded expectations. Major banks such as JPMorgan Chase and Goldman Sachs—barometers of economic activity—delivered solid, better-than-expected results. Meanwhile, mega-cap tech firms continue to benefit from the AI narrative, especially NVIDIA. A July report from the University of Michigan showed consumer sentiment rebounding to a five-month high early in the month following Trump’s signing of a budget bill including tax cuts. Bank of America’s latest Global Fund Manager Survey revealed investor sentiment surged to its most optimistic level since February, driven by profit expectations rising to a five-year high and a sharp increase in risk appetite. Measures of equity volatility remain subdued, suggesting little panic-driven hedging or position-shifting in the market. Respondents identified USD short positions as the most crowded trade currently. Although sentiment has grown somewhat exuberant, fund managers’ overweight positioning in equities has not yet reached extreme levels—implying further potential capital inflows to drive prices higher. Rising Sentiment RBC Capital Markets last Sunday raised its year-end S&P 500 target from 5,730 to 6,250—the second upgrade this year—citing heightened investor sentiment and growing focus on the 2026 economic outlook. They anticipate continued strong performance into 2026. A key focus of their current research is how equities perform ahead of a transition into modest economic growth—specifically within the 1.1%–2.0% range. Likewise, Morgan Stanley maintains its bullish stance on markets, citing robust earnings momentum, though it expects a modest pullback in Q3—creating a buying opportunity on dips. This Wall Street firm leans toward the S&P 500 reaching 7,200 by mid-next year, despite elevated Treasury yields potentially hurting rate-sensitive stocks—“valuations are supported near current levels.”

EBC Research Institute Hot Topic Analysis | U.S. Equities Surge, Dollar Diverges

Although second-quarter earnings exceeded expectations, the company reported zero H20 product sales to China during the quarter—tempering market optimism. Its stock has risen roughly 37% year-to-date. The Russell 2000 Index has outperformed the S&P 500 over the past six months, reflecting underlying improvements in fundamentals. Morgan Stanley forecasts the U.S. economy will enter a so-called “early-cycle” phase. A softening labor market casts a shadow over the “Make America Great Again” agenda: only 106,000 jobs were added from May to July—sharply down from the prior three months’ 380,000. The OECD’s latest report projects U.S. economic growth slowing to 1.8% in 2025 and further to 1.5% in 2026, noting that the full global impact of import tariffs has yet to materialize. Among manufacturers surveyed last month by the Dallas Fed, 71% reported tariffs had already negatively affected their businesses—raising input costs and eroding profits. Herd Behavior UBS Global Wealth Management strategists raised their year-end S&P 500 target to 6,600, betting on strong corporate earnings, easing trade tensions, and expectations of rate cuts. However, they maintain a “neutral” stance on markets, citing “the risk that markets may have priced in excessive optimism regarding trade progress, lack of near-term catalysts, and elevated valuations.” HSBC earlier this month lifted its forecast to 6,500, expressing particular optimism toward tech and financial stocks—citing stronger-than-expected Q2 corporate earnings and “limited” tariff impacts. RBC Capital Markets notes that historically, the median 12-month forward return following a “reset cut”—a rate cut occurring after an extended pause within a broader easing cycle—is 13%, suggesting the index could breach 7,100 in the second half of 2026. The firm also observes “a slowdown in the pace of upward revisions to S&P 500 EPS estimates,” highlighting that growth momentum is increasingly concentrated among the top ten largest-cap companies—foreshadowing widening market divergence. Goldman Sachs raised its year-end target to 6,800, citing the Fed’s dovish policy stance and resilient corporate earnings. Earlier this year, several major brokerages lowered targets below 6,000—a move later proven to be a significant misstep.

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