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JPMorgan explains why the S&P 500 will continue to rise
Economy
JPMorgan strategists seem to see something others don't: companies are starting to profit from artificial intelligence, which is driving the stock market even higher.
JPMorgan strategist Dubravko Lakos-Bujas raised his target price for the S&P 500 index to 8,000 from 7,800 on Monday. He cited two arguments in favor of this decision.
First, according to Lakos-Bujas, "87% of S&P 500 companies have reported, and the earnings picture remains strong and spans multiple sectors."
78% of companies beat earnings estimates, and 73% beat revenue estimates. Approximately 61% beat expectations on both revenue and net income, and only 10% missed both. Earnings per share forecasts have also been rising since the start of earnings season.
Secondly, on the topic of AI, Lakos-Bujas noted:
"Before the season began, we argued that hyperscalers' capital expenditure guidance would remain a key theme, with a closer focus on monetization indicators and return on invested capital. We saw confirmation of this in the second quarter—especially at Google, Amazon, and Microsoft, where stronger cloud growth, expanded order book, and improved operating cash flow visibility exceeded the lofty expectations of investors."
"While free cash flow is expected to remain negative in fiscal 2027 for most hyperscalers, demand and order coverage are improving relative to capital expenditures, as evidenced by rising backlog-to-capex and book-to-bill ratios," Lakos-Bujas added. "This suggests that monetization may begin to accelerate faster than expenses, which should support stronger revenue growth going forward and allay concerns about return on invested capital."
Bottom line: The market has had a turbulent summer. But the key is that stocks are once again hitting all-time highs as the current earnings season proves the bears wrong. Earnings are strong, as are third-quarter guidance.
"The weight of evidence continues to support giving the bull market the benefit of the doubt, even with further turbulence along the way," said Keith Lerner, chief market strategist at Truist.