Investment Banks Boost Stock Market Forecasts Citing AI Trade and Muted Tariff Effects

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Several major Wall Street firms raised their year-end forecasts for the S&P 500 this week, pointing to ongoing strength in artificial intelligence-related investments and diminishing worries over the impact of tariffs.

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Deutsche Bank now projects the benchmark index will finish 2024 at 7,000, up from its prior 6,550 estimate. Wells Fargo boosted its 2025 outlook to 6,650, raising it by 250 points from its last call. Barclays also adjusted its forecast, lifting its target for this year by 400 points to 6,450.

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The upward revisions came as the S&P 500 notched a fresh record of 6,550 on Wednesday morning, bolstered by softer inflation data that reassured markets.

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Strategists argue that optimism surrounding AI, along with less severe inflation effects from President Donald Trump’s tariff policies than initially feared, is giving investors reason to look past ongoing concerns about a cooling labor market. On Tuesday, sentiment around AI got another boost when Oracle stunned Wall Street with a bullish outlook for its cloud computing business.

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“The music stops when AI capex stops. Enjoy the party,” Wells Fargo analyst Ohsung Kwon wrote in a client note Tuesday night, referring to corporate spending on artificial intelligence infrastructure.

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Kwon acknowledged that valuations may look frothy but stressed that as long as AI capital expenditures continue, the bull market has room to run. He sees the S&P 500 climbing to 7,200 by the end of 2026 a gain of more than 10% from Tuesday’s closing level.

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Tariffs remain a key storyline, but their market impact is proving less damaging than once feared. Initially, investors worried that Trump’s import levies would stoke inflation, forcing the Federal Reserve to maintain higher rates for longer. Yet, according to CME’s FedWatch tool, futures markets now fully expect the Fed to cut rates at next week’s meeting.

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“While we do anticipate some pickup in inflation, the scale looks modest compared to the 2021–2022 spike, and markets will likely view it as transitory,” wrote Binky Chadha, Deutsche Bank’s chief U.S. equity and global strategist, in a Wednesday note. His upgraded forecast reflects that view.

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Chadha admitted that equity valuations are stretched but argued they have been propelled higher by shareholder payout ratios and steady expectations for earnings resilience. He will be discussing his updated call on CNBC’s The Exchange later Wednesday afternoon.

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Barclays also struck an optimistic tone. Venu Krishna, the bank’s head of U.S. equity strategy, said he expects the Fed to cut rates three times before the end of 2025 as a way to offset pressure from weakening labor trends. He characterized corporate earnings as “solid” and highlighted signs of stabilization in global GDP growth.

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Krishna raised his 2026 S&P 500 forecast by 300 points to 7,000. A large part of his confidence stems from the technology sector, where he now maintains an outright bullish stance. According to Krishna, big tech remains a secular growth story, and earlier fears of AI-driven disruption within software companies appear to have been overstated.

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“Macro is under pressure, but we take the ‘glass half full’ view,” Krishna told clients in his note Tuesday, underscoring his positive stance on equities despite broader economic headwinds.

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Taken together, these outlook upgrades highlight how the AI investment boom and expectations for monetary easing are shaping Wall Street’s constructive view on stocks. While risks tied to tariffs, labor market weakness, and stretched valuations remain, many strategists believe the S&P 500 still has room to run into 2025 and beyond.