The Market’s Next Move Is Already Underway

• Invest for what S&P 500 earnings growth looks like a year down the road.

• Wall Street expects CY2027 earnings of $398.

• That gets me to a year-end target of 8,000.

Markets don’t demand a clear horizon—they’re already leaning into what’s next…

Many of the pundits on financial networks like CNBC and Bloomberg never cease to amaze me. Time and again, they rant and rave about how the stock market isn’t connected to the real world. They can’t understand why stocks and indexes are rising while the world around them is steeped in uncertainty. These talking heads get so caught up in gloom‑and‑doom scenarios that they can’t see the forest for the trees.

You see, great investors aren’t focused on the moment. They’re discerning what the environment will look like a year, or further, down the road. They know that today’s uncertainty eventually gives way to tomorrow’s clarity. And when predictability returns, they’re selling to the same people who doubted the rally 12 months earlier.

We’re halfway through the year, the market keeps grinding higher, and the skeptics keep asking why. They can’t seem to grasp that the artificial‑intelligence capital‑expenditure cycle is still accelerating. SemiAnalysis estimates more than $11 trillion in total AI spending by 2030. That kind of investment expands margins, boosts revenue, and lifts earnings power across the economy. The naysayers are missing what’s right in front of them.

Second‑quarter earnings season is around the corner, and analysts have been raising their forecasts. FactSet shows S&P 500 calendar‑year 2026 earnings estimates rising from $311 to $341 over the last six months. Expectations for 2027 have climbed from $358 to nearly $400. Based on those numbers, the S&P 500 could rally close to 10% by year‑end.

But don’t take my word for it, let’s look at what the data’s telling us…

Coming into the first quarter, analysts were conservative in their earnings expectations. At the start of January, they predicted S&P 500 companies would report combined growth of 13%. That forecast came up short. With earnings now in the rearview mirror, growth came in at 27%...

A big driver of the upside was the adoption of AI. Financial behemoths like JPMorgan, Goldman Sachs, and Bank of America said they’re increasingly deploying the technology across all platforms. JPMorgan CEO Jamie Dimon framed AI as a structural, enterprise‑wide shift already delivering measurable cost savings and reducing hiring needs. Goldman and Bank of America said AI is a catalyst for reorganizing their firms and boosting operating efficiencies.

That spend is helping power demand and margins for the goods and services offered by major technology companies. Microsoft, Nvidia, and Amazon’s management teams said they can’t keep up with demand. As a result, their earnings power is being constrained as they race to build capacity to meet customer needs. The recent launch of Agentic AI at the start of this year could compound that problem.

The Technology and Financials sectors account for around 47% of S&P 500 earnings power combined. When we include Communication Services (Alphabet and Meta), the number jumps to about 60%. That’s important because the companies with the greatest ability to drive the index’s earnings higher are positioned for margin expansion. In other words, the broader index’s expectations need to go up.

As I said at the top, at the start of the year, analysts predicted calendar year 2026 earnings of $311 and calendar year 2027 earnings of $358. Now, those numbers have risen to $341 and $398, respectively…

The next step is to apply a suitable price‑to‑earnings multiple to estimate fair value. Let’s use 20x earnings, given that’s the five‑year average.

Remember, we want to invest today based on what earnings potential will look like a year from now. So, by the end of August, when second‑quarter results are complete, the market should be priced based on the forward 12‑month numbers. Multiplying our fair‑value multiple of 20x by the forward 12‑month earnings estimate of $370, we get a price target of 7,405 for the S&P 500, in line with current levels.

But look further down the road. By year‑end, the market should be priced off CY2027 earnings estimates. Using the same math, fair value lands us near 8,000 for the S&P 500. That’s almost 10% above today’s levels.

Look, the market isn’t irrational, it’s early. The road ahead is always going to be filled with uncertainty. But while the pundits wait for clarity, disciplined investors are already positioning for what’s next. With earnings power accelerating and AI driving margin expansion, the S&P 500 isn’t topping out, it’s gearing up. Invest in the road ahead.

Five Stories Moving the Market:

A few Federal Reserve officials in their most recent policy meeting said there was a case for raising interest rates, though they ultimately supported the decision to leave rates on hold; minutes of the Federal Open Market Committee’s June 16-17 meeting reflected growing concern among policymakers over inflation just as worries over the labor market slightly receded – Bloomberg. (Why you should care – since the meeting, oil prices have dropped as much as 35% from the recent peak)

American military forces launched new strikes on Iran, according to the U.S. Central Command, hours after President Trump announced the end of an eight-week ceasefire; the strikes were designed to “further degrade their ability to threaten freedom of navigation in the Strait of Hormuz,” according to a Centcom statement – WSJ. (Why you should care – the U.S. is likely trying to drive home the message that no one country can control an important shipping passage like the Strait of Hormuz)

President Donald Trump said the U.S. would grant Ukraine a license to manufacture Patriot missile interceptors, ​a huge boost for Kyiv, which has long sought permission to produce the defensive weapons – Reuters. (Why you should care – Trump reiterated his opinion that both Ukraine and Russia are interested in ending the war)

SK Hynix's U.S. listing is more than seven times oversubscribed, according to people familiar with the matter, as the South Korean memory chipmaker prepares to price its offering – Bloomberg. (Why you should care – the deal is on track to raise roughly $24.5 billion, underscoring the surging global demand for AI chip suppliers and making this one of the largest foreign listings ever in the U.S.)

Apple plans to spend more than $30 ​billion under a multi-year chip supply deal with Broadcom, bolstering ‌its U.S. sourcing as President Donald Trump's administration pushes to expand domestic chip manufacturing - Reuters. (Why you should care – Broadcom said it will expand its Fort Collins, CO, plant to manufacture more chips in the U.S.)

Economic Calendar:

Earnings: PEP, WDFC

Germany – Exports, Imports for May (2 a.m.)

Japan – Machine Tool Orders for June (2 a.m.)

ECB Meeting Minutes (7:30 a.m.)

U.S. - Initial Jobless Claims (8:30 a.m.)

U.S. - Continuing Claims (8:30 a.m.)

Fed's Williams (New York, Voter) Speaks (9 a.m.)

U.S. – Existing Home Sales for June (10 a.m.)

Treasury Auctions $22 Billion in 30-Year Bonds (1 p.m.)

Fed's Logan (Dallas, Voter) Speaks (1:30 p.m.)

Fed's Balance Sheet Update (4:30 p.m.)

Japan – PPI for June (7:50 p.m.)