Two Big Banks Just Raised Their S&P 500 Targets. Here's Why.

Core Insights - Deutsche Bank raised its year-end target for the S&P 500 to 7,000 from 6,550, citing boosted earnings per share estimates for 2025 and a 7% increase above the index's record close [2][6] - Barclays also increased its year-end target for the S&P 500 to 6,450 from 6,050 and its 2026 target to 7,000 from 6,700, driven by strong corporate earnings and anticipated interest rate cuts [6][9] Earnings and Valuations - Deutsche Bank projects earnings growth of over 9.5% this year and nearly 14% next year, which is above the average for typical non-recession years [4] - Analysts believe stock valuations will remain high as companies maintain elevated payout ratios and earnings resilience [4] Market Sentiment and AI Impact - The ongoing enthusiasm around AI, particularly following Oracle's strong guidance, is contributing to the bullish outlook for stocks [2][6] - Both Deutsche Bank and Barclays highlight the AI boom as a significant factor in driving stock prices higher [6][9] Labor Market Concerns - Barclays expressed caution regarding emerging labor market risks that could potentially offset strong corporate earnings and AI-driven growth [10] - Despite these concerns, Barclays anticipates three Federal Reserve rate cuts this year to support economic stability [10] Sector Preferences - Deutsche Bank favors large growth stocks, tech shares, and financials while remaining underweight in defensive sectors such as consumer staples, utilities, and healthcare [8]