BMO raises S&P 500 target to 7,850 on unprecedented earnings growth

BMO Capital Markets raised its S&P 500 year-end target to 7,850, citing 29% forward earnings growth as the primary driver.

"The robust earnings story is somewhat unprecedented and provides a phenomenal boost for stock prices," Francois Trahan, chief investment strategist at BMO Capital Markets, said.

The new target implies about 8% upside from Wednesday's close of 7,266.99. Forward earnings are growing at 29% for the S&P 500, 18% for mid-cap stocks and 24% for small-caps — levels not seen since the post-pandemic rebound, according to Trahan. The strategist noted that the current cycle differs from prior episodes because the economy did not experience a recession before earnings rebounded.

Trahan warned that such rapid earnings growth typically brings inflation as a byproduct. He expects core inflation to accelerate by autumn 2026, potentially overtaking artificial intelligence as the dominant market narrative. The S&P 500 may surpass 7,850 in the coming months before giving back some gains when inflation pressures materialize, he said.

The strategist acknowledged that US consumers face stress from an affordability crisis, which dampens the broader growth story. Still, he described the earnings backdrop as a "tide that lifts all boats," with stimulus from prior policy measures continuing to flow through the economy.

Trahan maintains a bullish bias toward cyclical sectors, betting that the strong earnings environment will support economically sensitive stocks even as the AI trade cools. The technology sector has sold off in recent days as enthusiasm for AI and memory chip makers faded.

The target raise shows BMO sees earnings momentum as the dominant near-term driver for equities. Investors will watch monthly inflation data through the third quarter for signs that core price pressures are building as Trahan projected.

This article is for informational purposes only and does not constitute investment advice.