Investing.com -- Barclays (LON:BARC) has lifted its year-end 2025 price target for the S&P 500 to 6,600 from 6,500, reflecting a resilient US macroeconomic backdrop, normalized inflation, and the continued earnings leadership of Big Tech.
The adjustment aligns with its view that "macro positives outweigh the negatives," setting the stage for another year of robust equity performance, albeit at a slower pace than in 2024.
The new target is based on a 24x forward price-to-earnings (P/E) multiple applied to the revised fiscal 2025 (FY25) earnings per share (EPS) estimate of $271, which represents 11.5% year-over-year growth.
Big Tech remains pivotal to this outlook. Barclays notes that consensus estimates for Big Tech’s FY25 earnings are "12% too low," while the rest of the S&P 500 faces headwinds, with estimates appearing "7% too high."
The upward revision in Big Tech’s guidance underscores its role as the critical driver of overall EPS growth. Meanwhile, decelerating global growth and disinflation are expected to pressure non-tech sectors.
The revised 2025 target implies a 10% upside from Barclays’ updated year-end 2024 forecast of 6000, itself raised from 5600. The bank highlights a supportive macroeconomic environment, characterized by moderating but healthy growth of 2.1% in 2025, alongside easing rate cuts by the Federal Reserve.
“The consumer is the central pillar of both the US economy and the US equity market, and our research colleagues' latest deep dive into the State of the US Consumer offers cause for optimism,” strategists led by Venu Krishna note.
“Credit card data and back-to-school spend trends may hint at a modest slowdown in growth, but income, wealth and savings fundamentals look solid. Concerns around household financial distress appear overblown,” they add.
This outlook is further bolstered by retail equity inflows, which reached a three-year high last month, and the potential for systematic fund positioning to add upward pressure if volatility subsides.
Sector-wise, Barclays upgraded Healthcare to Positive, citing earnings resilience and valuation support, while maintaining a bullish stance on Big Tech. However, the firm downgraded other defensive sectors such as Utilities and Staples, viewing their valuation levels as stretched.
Growth over Value and Large-cap over Small-cap remain Barclays’ preferred styles, underpinned by strong fundamentals and a challenging macro backdrop for small-cap equities.
Potential risks to the outlook include the trajectory of Big Tech’s AI-driven investments, which could face scrutiny if adoption lags, and uncertainties surrounding economic policies under the new administration.
While the base case assumes a stable macro environment, Barclays assigns equal probabilities to its bull and bear scenarios, with year-end targets of 7250 and 5400, respectively.