Two Big Banks Just Raised Their S&P 500 Targets. Here’s Why.

Strong earnings, interest rate cuts and a resilient AI boom could mean stocks keep rising in the next year, according to two big Wall Street Banks.

Deutsche Bank on Wednesday raised its year-end target for the S&P 500 (SPX) to 7,000 from 6,550 as analysts led by Binky Chadha boosted their 2025 earnings per share estimate for companies in the benchmark index.

That level would be 7% above the index’s record close Wednesday, which it reached with the help of continued euphoria around the AI trade, powered by Oracle’s (ORCL) blowout guidance, and increasing expectations of interest-rate cuts by the Federal Reserve. (Stocks continued to rise Thursday.)

Companies Expect to Be Able to Manage Tariffs, Deutsche Bank Says

Companies aren’t suffering the pain from President Donald Trump’s tariffs that many investors and economists predicted, Deutsche Bank wrote. “Companies see the hit from tariffs so far as modest and likely to remain manageable,” the analysts wrote.

They said that stock valuations will continue to stay high as companies maintain high payout ratios and earnings stay resilient. Deutsche analysts are projecting earnings growth of more than 9.5% this year and almost 14% next year, above the average it cited for typical non-recession years.

The Trump administration, meanwhile, could reverse painful measures around trade or immigration policies if those hammer markets, according to Deutsche Bank.

“If the perceived risks to growth or inflation rise and Presidential job approval ratings fall as they did post Liberation Day, we expect relents on policies,” they wrote.

The Deutsche analysts said they continue to like large growth stocks and tech shares, as well as financial shares, but remain underweight in “defensive bond-like sectors” like consumer staples, utilities, real estate, healthcare and restaurants.

AI Offers Another Boost But Labor Risks Loom, Barclays Notes

Deutsche Bank wasn’t the only Wall Street player that upped its target for the S&P 500 this week. Barclays raised it year-end target to 6,450 from 6,050. While that was below Wednesday’s close, Barclays also increased its 2026 price target for the S&P 500 to 7,000 from 6,700.

Like Deutsche, the Barclays analysts cited buoyant corporate earning projections and the prospect of rate cuts as driving stock price movement.

Still, they were more cautious than Deutsche, seeing “emerging labor market risks” that could offset strong company earnings and “AI-centric growth.”

On balance, however, the Barclays analysts led by Venu Krishna said that while “macro is under pressure” they expect three Fed rate cuts this year to help guide the economy “toward a manageable deceleration.”