Reiterating our 12-month S&P 500 price target of 7,750
As a reminder, we are updating our price target monthly, and use five models to derive it. We’ve repriced them for the 12/31/2025 close and updated the macro assumptions and other inputs into them for changes in December. There are three major takeaways:
- After running through this exercise, 7,750 is approximately the median output from our five models which focus on investor sentiment, valuation and EPS, the appeal of stocks relative to bonds, the economic backdrop, and the monetary policy backdrop.
- The range of outputs tightened from roughly 7,200–8,000 in the early-December edition of our analysis to roughly 7,500–8,000 in our early-January update.
- Third, the signals shifted for two of our models in opposite directions and 1 standard deviation above the average, taking this indicator into a range that has been accompanied by a 9% 12-month-forward return in the S&P 500 over time.
Suffice it to say that there’s been no major change in our thinking about the broader market and key positioning calls as the new year gets underway. We continue to anticipate another solid year of S&P 500 performance (roughly 13% vs. the 12/31/2025 close), supported by continued solid economic growth, additional/modest easing from the Fed, and solid earnings growth (also 13% based on bottom-up consensus views).
What else jumps out on our latest updates
The size and style trades aren’t moving in lockstep. Within Large Cap, Value outperformed Growth as 2025 wound down, and the biggest market cap names showed signs of a stall relative to the rest of the market. But the second burst of Small Cap leadership that started up again in December fizzled as the year came to a close. On the topic of Small Caps, we found it interesting as we ran through end-of-year updates that they no longer look out of favor on CFTC’s data for US equity futures positioning. We continue to see intriguing earnings dynamics for Small Caps on a few of our charts and think a continued rebound in economic optimism could help this corner of the market outperform in a more sustainable way, but are also concerned that key indicators that are usually a signal that a Small Cap leadership cycle is underway – a pick-up in ISM manufacturing and jobs growth – remain elusive.
We will be keeping a close eye on the rate of upward EPS estimate revisions for the S&P 500 in the upcoming reporting season. Whether we’re looking at the S&P 500, the top 10 market cap names in the S&P 500, or the rest of the index, the rate of upward EPS estimate revisions – our favorite gauge of earnings sentiment – remains in positive territory but has not yet been able to recapture its late-summer high. We think the deceleration in earnings sentiment that occurred in recent months contributed to choppy conditions in stocks in November.
CFOs are feeling a little bit better as 2026 begins. Over the holidays, the soft data we were most curious about was the quarterly Duke CFO survey. Optimism on both one’s own company and the broader economy remained subdued but did pick up. Tariff concerns fell, but tariffs remained the top item on the list of worries. The survey also revealed some optimism about productivity benefits from AI in the year ahead, but few seemed to be anticipating major impacts to costs and employment.
