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Investing.com -- Barclays sees the market’s next leg of growth taking shape in 2026, driven by resilient earnings from mega-cap technology firms and a more supportive monetary backdrop.
As a result, the bank lifted its S&P 500 year-end 2026 target to 7,400 from 7,000, and upped its full-year 2026 (FY26) earnings per share (EPS) estimate to $305 from $295.
The new target is based on applying roughly a 24x multiple to FY26 earnings, with Barclays assigning about 30x to Big Tech, 28.5x to the rest of Tech, and 20.5x to the remainder of the index.
“We see upside to the Street’s FY26 Tech EPS estimates as megacaps continue to execute in a low macro growth environment and with the AI race showing no signs of slowing,” strategists led by Venu Krishna wrote in a Wednesday note.
At the same time, the team believes earnings outside the Tech sector are likely to lag consensus, as rising inflation and a softer labor market dampen economic activity and consumer spending.
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AI remains the defining theme behind Barclays’ bullish call. Despite recent volatility around hyperscaler capex and financing needs, the bank maintains that compute demand and monetization avenues continue to scale, spanning paid users, advertising and enterprise tools.
Concurrently, easier financial conditions and Federal Reserve rate cuts should support equity valuations, M&A activity and sectors sensitive to lower rates. Strategists add that hyperscalers are increasingly turning to both public and private credit markets to help fund heavy capex commitments, a shift that has contributed to recent stock volatility.
They also highlight a firmer fiscal backdrop heading into 2026 and argue recent tariff adjustments have reduced worst-case trade scenarios, though some price pressures are still “in the pipe.”
Barclays expects U.S. GDP growth to remain sluggish but better than most developed markets (DM), with unemployment drifting higher yet staying within a neutral range. A sharper downturn in unemployment “remains the biggest near-term risk,” strategists cautioned.
They also flag that the 2026 U.S. midterm elections could introduce an additional layer of policy uncertainty, with historical patterns showing softer equity returns in midterm years.
Sector-wise, Barclays takes a positive stance “on the entire TMT complex as a secular growth story, and favors Financials and Utilities “for exposure to lower rates and M&A upside at reasonable valuation.”
Consumer sectors and commodity-linked areas remain underweight calls due to sentiment, inflation dynamics and oversupply.
On style, Barclays continues to prefer Growth over Value, citing easing financial conditions, longer-duration earnings profiles and strong Tech fundamentals.