Wall Street strategists are waiting for the S&P 500 above 7,000 points. What do they advise investors?

Oppenheimer strategist gave the most optimistic forecast on Wall Street for the S&P 500 index - he expects the benchmark to grow by 20% at the end of the year for the third time in a row. Morgan Stanley's chief strategist also believes in the bullish scenario for U.S. shares. In the short term, risks for the market remain, he admits, but advises investors to use drawdowns as an opportunity to buy shares at a discount;

Two Wall Street strategists are forecasting the S&P 500 Index to rise above 7,000 points on the back of trade agreements and strong corporate reports. 

Oppenheimer chief investment strategist John Stoltzfus on July 28 raised his forecast for the S&P 500 Index to end the year from 5,950 to 7,100 points, the most optimistic figure among strategists tracked by Bloomberg. The new forecast implies a rise of about 11% from the previous close. 

"Progress in trade negotiations removes the uncertainty that has been weighing on our market forecasts," Stoltzfus wrote in a research note. If his forecast materializes, the S&P 500 Index will post a third consecutive year of 20% year-over-year gains, which hasn't happened since the late 1990s, Bloomberg notes. 

Strategist Oppenheimer also raised its 2025 earnings estimate for companies in the S&P 500 Index to $275 per share, 3% above the average analyst forecast. The new earnings forecasts from Oppenheimer imply a further widening of the index's valuation, to a price-to-earnings ratio for next year (forward P/E) of 25.8, up from the current 22.5.

For his part, Morgan Stanley chief strategist Mike Wilson said he is now leaning toward his bullish scenario for the S&P 500. He estimates the index could reach 7,200 points in 12 months, based on average earnings per share of $319 and a forward price-to-earnings ratio of 22.5, writes MarketWatch. Its target implies a gain of nearly 13% from the closing level of recent trading. 

Oppenheimer strategists note that companies' revenue and earnings growth over the past two quarters have exceeded expectations, and results from the current reporting season show 84% of companies exceeding analysts' consensus forecasts, Bloomberg writes.

Morgan Stanley's Wilson also attributes his assessment to stronger-than-expected corporate earnings and cash flows. The improved financial results, in his opinion, are influenced by the introduction of artificial intelligence technologies, a weak dollar, tax savings due to the budget law adopted by the administration of U.S. President Donald Trump, as well as pent-up demand in many sectors of the market, writes MarketWatch.

In addition, many segments of the stock market will be supported by lower-base comparisons because, as Wilson put it, they have been experiencing "rolling earnings recessions" for much of the past three years.

He cites industrials as the preferred sector for investors, despite the fact that the sector is already the best performing sector in the S&P 500 index both since the beginning of the year and over the past month, MarketWatch writes.

"Relative earnings forecast revisions remain robust, capacity utilization is stabilizing, and combined commercial and industrial loans have surpassed $2.8 trillion (the highest since 2020)," he writes.

The high probability of additional Fed rate cuts in the first quarter of 2026 will also be a plus for the stock market, Wilson said.

"Our analysis shows that when earnings per share (EPS) growth exceeds the long-term median and the federal funds rate declines on an annualized basis (which we project will happen by mid-2026), the market multiple expands 90% of the time," he explains, adding that this provides a favorable backdrop for cyclical industries.

Strategist highlights Rockwell Automation, Eaton, Trane Technologies and Johnson Controls International among the companies that will benefit from internal infrastructure investment, especially in the technology sector.

Wilson recognizes that trade duties could be a problem for consumer goods companies and therefore suggests investors keep them in a portfolio with a smaller stake. However, in general, he says, "the increase in policy uncertainty peaked in April, when the stock market bottomed out."

Despite Wilson's positive outlook through 2026, he recognizes that risks remain in the short term: persistently high long-term Treasury bond yields, duty-related inflation, and seasonal fluctuations in the stock market.

"We therefore expect some consolidation in the market from a tactical perspective, but again emphasize that pullbacks will be shallow and we use such drawdowns as a buying opportunity," he says.

U.S. stocks rose to record levels after the White House administration struck a series of trade agreements ahead of the Aug. 1 deadline, including with Japan and the EU, setting a flat 15% duty on imports. A number of Asian exporters, including Indonesia and the Philippines, agreed to reciprocal rates ranging from 15% to 20%.

The U.S. is also continuing talks with a number of countries including Switzerland, South Korea and Taiwan. With China, the U.S. is expected to extend the temporary trade war truce for another three months.

This article was AI-translated and verified by a human editor