Julian Emanuel, Chief Equity and Quantitative Strategist at the renowned U.S. investment bank Evercore ISI, recently stated that his base expectation is for the S&P 500 index to rise to 7,750 points by year-end, and believes there is a 30% probability of it reaching 9,000 points in a bull market scenario, driven by rallies in AI-powered technology, communication services, and consumer discretionary stocks.
Despite the ongoing deadlock in the Middle East conflict, the U.S. stock market remains 'enthusiastic'. However, over the past two days, as a surge in oil prices sparked global inflation concerns and U.S. Treasury yields soared, U.S. stocks have slightly pulled back. Analysis indicates that against the backdrop of rising energy prices and intensified long-term inflation worries, bonds have become more attractive compared to higher-risk stocks, leading to capital flowing out of the equity market.
Nevertheless, Emanuel maintains an optimistic view. In a report to clients on Monday, he pointed out that the collision of a structurally driven bull market with sweeping global geopolitical transformations is producing a wider range of outcomes than investors or predictive tools typically model, thereby increasing the likelihood of extreme outcomes (bull market scenarios).
The report further explained, 'The pandemic changed everything. Wartime-like stimulus measures, the surge in M2, and productivity shocks are now colliding with the 'AI revolution'—this is reminiscent of the 1920s and 1990s.'
Both of those decades experienced an acceleration in productivity growth driven by 'general-purpose technologies' (such as electricity and internal combustion engines in the 1920s, and information technology in the 1990s), leading to a surge in fixed investment, although ultimately forming stock market bubbles.
Emanuel expects AI to drive productivity growth to 3% by 2030.
The firm recommends buying what it calls '2026 AI Era' stocks and long-term call options on the Invesco QQQ ETF, which tracks the Nasdaq 100 index, to capture the 'seemingly unimaginable' upside potential. It also suggests employing a collar strategy on the SPDR S&P 500 ETF (SPY) to hedge against near-term risks from oil and interest rate volatility.
A Collar Strategy is a common options combination strategy primarily used to control downside risk and reduce hedging costs while holding the underlying asset (such as stocks, futures, etc.). It achieves a balance of risk and return by combining the purchase of put options and the sale of call options.
However, Emanuel cautioned that AI remains probabilistic and has limitations. Large models exhibit what Evercore ISI terms a 'narrow consensus' bias, meaning responses cluster around the consensus and underestimate extreme outcomes. This implies that enduring value will come from domain expertise and mastery of the complete workflow, not just AI capabilities themselves.
He added that prediction markets reveal the beliefs of the crowd but cannot discover the future; therefore, they are less reliable for sequential, long-term, or fat-tailed outcomes.
Overall, however, Wall Street remains quite optimistic about AI continuing to fuel U.S. stocks. Veteran Wall Street investor Ed Yardeni, founder of the investment advisory firm Yardeni Research, recently raised his year-end target for the S&P 500 index from 7,700 points to 8,250 points, becoming the most optimistic among Wall Street's top forecasters.
Not only that, he also stuck to his prophecy, 'The S&P 500 index will reach the 10,000-point target by the end of 2029, and this target may be achieved ahead of schedule.'
RBC Capital Markets raised its year-end target price for the S&P 500 index from 7,750 points to 7,900 points, citing strong earnings growth and continued strength in AI-related sectors.
