Deutsche Bank joins calls for S&P 500 at 8,000 in 2026 as market breadth improves

Core Viewpoint - The US stock market rally may be shifting, with earnings growth expanding beyond major tech companies, potentially leading the S&P 500 to reach 8,000 by the end of 2026, supported by improving earnings, steady investor interest, and ongoing corporate buybacks [1][8]. Earnings Growth - The S&P 500 has experienced a 22.7% annual growth rate since 2021, but this growth has been uneven, primarily driven by mega-cap tech companies, while other sectors have faced challenges [2]. - In Q3, S&P 500 earnings increased by 14%, with approximately two-thirds of this growth coming from companies outside the mega-cap tech sector, indicating a broadening of market gains [3]. - Earnings growth abroad reached 7.8%, the fastest in three years, although forecasts for Q4 suggest a potential earnings dip, which Deutsche Bank believes is overly pessimistic [4]. Earnings and Valuations - Deutsche Bank projects S&P 500 earnings per share to reach $320 in 2026, reflecting a 14% increase after a 10% rise in 2025 [5]. - Current valuations are around 25 times trailing earnings, which are above long-term averages, but Deutsche Bank argues that structural changes justify these elevated multiples [6]. Demand and Supply Dynamics - The demand-supply model indicates continued support for equity prices through 2026, with investor positioning allowing for increased exposure and ongoing buyback commitments from companies [7]. Sector Outlook - Deutsche Bank is overweight on Financials, Industrials, and Healthcare, citing favorable conditions for loan growth, secular demand, and priced-in risks [10]. - The bank maintains a neutral stance on mega-cap growth and tech, as well as on Energy, Materials, Consumer Cyclicals, and Utilities, due to various market conditions [11]. - On the defensive side, Deutsche Bank is underweight on REITs, Telecom, Consumer Staples, and Restaurants, highlighting concerns over risk profiles and margin pressures [12]. Conclusion - The outlook suggests that while the previous years were characterized by a narrow set of winners, 2026 could see broader market participation, alleviating concerns about a top-heavy bull market [13].