Barclays Raises Target for S&p 500 Next Year as Wall Street Targets Narrow

Barclays has revised its projections for the S&P 500, aligning its outlook more closely with those of other Wall Street firms. This adjustment reflects cautious optimism tempered by potential challenges tied to economic policies and broader market dynamics.

‍

Updated S&P 500 Projections

Barclays raised its year-end 2025 target for the S&P 500 to 6,600, up from its previous forecast of 6,500. This updated figure matches the median of nine Wall Street projections compiled by MarketWatch for the same period.

‍

For 2024, Barclays increased its year-end target to 6,000, a significant jump from its earlier estimate of 5,400.

‍

As of last Friday, the S&P 500 closed at 5,969, reflecting steady market performance in line with Barclays' short-term expectations.

‍

Consumer Strength and Market Fundamentals

Barclays strategists, led by Venu Krishna, emphasized that the resilience of the U.S. consumer remains a critical driver of both economic activity and stock market stability.

‍

“While credit card data and back-to-school spending trends suggest a slight deceleration in growth, the overall picture of consumer income, wealth, and savings remains solid,” they noted.

‍

This robust consumer underpins Barclays’ optimistic revisions. However, the strategists also identified key risks that could disrupt this trajectory, particularly related to policy changes underthe Trump administration.

‍

Risks from Fiscal Policy and Inflation

Barclays warned that higher tariffs and tighter immigration policies proposed by the incoming administration could have a material impact on inflation rates by mid-2024.

‍

“These policy shifts pose a notable risk to equities,” the team explained. “Treasury yields have risen sharply since September and are nearing levels that historically act as a headwind for equities. This could become problematic, especially if fiscal expansion proceeds with fewer rate cuts to offset the pressure.”

‍

Despite these concerns, Barclays believes that uncertainties around the timing and scope of Trump’s policies make it difficult to fully assess their impact. Furthermore, the strategists pointed out that markets have managed to navigate inflationary and interest rate pressures well in recent years, except during the Federal Reserve’s rate hikes in 2022.

‍

Earnings Projections and Sector Dynamics

Barclays updated its earnings-per-share (EPS) estimate for the S&P 500 in 2025 to $271, slightly below the Wall Street consensus of $275 but higher than its previous forecast of $268.

‍

This revision is driven by expectations of stronger-than-anticipated earnings from the technology sector, particularly among the largest companies. However, the team noted that slowing international growth and disinflation could leave earnings estimates for the rest of the S&P 500 around 7% too high.

Bull and Bear Scenarios

Barclays outlined potential scenarios for the S&P 500 based on varying economic and policy outcomes:

• Bull Case (7,250): This optimistic scenario could materialize if advancements in artificial intelligence (AI) by major tech companies lead to significant functionality
• improvements and widespread adoption. Additionally, if pro-growth policies from the Trump administration are implemented quickly, the market could see substantial gains.
• Bear Case (5,400): In a more pessimistic scenario, excessive capital spending by tech companies could result in overcapacity, while tariffs and tighter immigration policies could weigh more heavily on economic growth than currently anticipated.

‍

Assumptions on Tariffs

Barclays’ base-case assumption is that tariffs will only reach half of the levels proposed during Trump’s campaign—30% on Chinese goods and 5% on imports from other countries.

‍

If these assumptions hold, the direct impact on S&P 500 earnings would be a reduction of 1.5%, with an additional potential loss of 0.7% depending on the extent of retaliatory measures from trade partners.

‍

Key Takeaways

Barclays’ revised targets highlight the complex interplay of consumer strength, fiscal policy, and market dynamics shaping the S&P 500’s outlook for 2024 and 2025. While optimism about consumer fundamentals and tech earnings supports the firm’s upward revisions, significant risks remain tied to policy uncertainties and potential inflationary pressures.

‍

Investors will need to closely monitor developments in fiscal policy, tech sector performance, and global economic conditions as these factors continue to shape the market's trajectory over the coming years.

‍