Wall Street strategists lift S&P targets ahead of earnings season on 'fundamental strength'

Core Viewpoint - The current stock market rally is driven by optimism surrounding AI advancements, Federal Reserve easing, and strong economic data, despite concerns over a potential government shutdown and warnings of an AI "bubble" [1] Group 1: Market Outlook - Ed Yardeni has raised his S&P 500 target to 7,000, describing the rally as a "slow-motion melt-up" supported by earnings resilience and Fed rate cuts [2] - Evercore ISI's Julian Emanuel maintains a base-case target of 7,750 for 2026, with a 30% chance of the S&P 500 reaching 9,000 by the end of next year due to accelerating capital markets and ongoing AI investment [3] Group 2: AI Investment and Market Sentiment - OpenAI announced a multibillion-dollar deal with AMD, allowing OpenAI to acquire up to 10% of AMD, highlighting significant AI spending [4] - Jeff Bezos characterized the current AI boom as a "good kind of bubble" that could lead to substantial investment and innovation, benefiting the broader economy [4] Group 3: Valuation Concerns - Goldman Sachs CEO David Solomon cautioned that while tech and stimulus may support economic growth into 2026, a market drawdown could occur in the next 12 to 24 months as some capital may not yield returns [5] - The S&P 500 is trading at approximately 25 times expected earnings for this year, indicating high confidence in profit expectations, with projected earnings growth of 13% next year and 10% in 2027 [6] - Higher valuations than historical norms are essential for further upside in the S&P 500, with solid earnings growth already factored into stock prices [7]