Barclays remains bullish on the outlook for U.S. stocks, raising its profit forecast and target for the S&P 500 and arguing that markets are showing no signs of panic.
"Macroeconomic risks are rising (Middle East war, disruptive AI impact, strained private credit), but the U.S. continues to lead in nominal growth and tech-driven secular trends," strategists led by Venu Krishna wrote in a note on Tuesday.
The brokerage raised its 2026 S&P 500 earnings per share forecast to $321 from $305 and increased its year-end target to $7,650 from $7,400, driven primarily by higher revenue. "We are becoming increasingly optimistic on the earnings outlook," the strategists wrote.
The increase reflects a strong outlook for technology companies, improving industrial activity, and robust nominal growth. These factors are expected to offset weaker growth outside the US and tougher consumer comparisons later in the year. Barclays noted that the new earnings per share estimate is broadly in line with market expectations of $322.
Regarding the year-end target increase, strategists stated that the move is driven by a "stronger earnings base rather than a reassessment."
"We are lowering fair value multiples across the board to account for heightened outcome uncertainty for both the macroeconomy and AI," they added.
But despite the uncertainty, Barclays notes that the US economy continues to demonstrate "robust consumption" and stable labor market conditions, along with ongoing AI-related investment. The bank expects real GDP growth of 2.6% in 2026, with inflation remaining "sticky but well-anchored." At the same time, risks are skewed to the downside. The strategists warned that the distribution of results has shifted left, with their bearish target of 5,900 implying a potential correction of about 15% from recent highs. Elevated energy prices and strained private lending could put the Federal Reserve in a difficult position between inflation and growth.
Nevertheless, positioning suggests limited fear in the markets. "Long-term funds have reduced their exposure, hedge funds have moderately reduced their gross position, and systematic risk appears more symmetrical," the strategists noted.
Meanwhile, options market activity has shifted back to macroeconomic concerns, but the team stated that "there's no panic yet," with available funds still available. "More short-term downside could be channeled through real money outflows and systemic selling pressure if sentiment deteriorates and we face a feedback loop of inflation volatility," the strategists added.
By sector, Barclays upgraded its industrials rating to positive, citing manufacturing momentum and AI-driven demand, while upgrading materials and energy to neutral as supply disruptions support prices. Technology and financials remain key pillars of earnings growth, with AI investment continuing to be the primary driver.