Capital Economics Upgrades S&P 500 Forecast: Index Expected to Hit 7,000 by End of 2026

Capital Economics has revised its S&P 500 forecast, projecting that the index could surge to 7,000 by the end of 2026. The bullish revision reflects improving global market conditions, a temporary easing of US-China trade tensions, and a more stable economic backdrop.

In a market commentary issued Thursday, the economic research firm adjusted its stock market outlook for the end of 2025, lowering its target to 6,250 from a previous estimate of 7,000. However, the long-term view remains positive, with the end-2026 forecast raised from 6,000 to 7,000.

Trade Tensions Ease, Boosting Equity Sentiment

The upgrade comes after a 90-day suspension of reciprocal tariffs between the US and China, which has helped calm investor nerves. According to Capital Economics, this development marks a shift towards more favourable conditions for equities.

"Current market dynamics are more supportive of a rally than during the height of the trade dispute," analysts noted. However, they warned that the situation remains fluid, and full resolution of trade issues is still uncertain.

Investor Caution Lingers Despite Bullish Market Outlook

While the 2026 forecast has been significantly upgraded, Capital Economics stopped short of reinstating its pre-trade war predictions for 2025. The firm pointed to lingering market volatility and investor caution following a turbulent April.

“We anticipate that many investors will be more hesitant to aggressively return to the stock market following recent uncertainty,” the report stated.

Tech Sector Faces Growing Competition from China

The analysis also highlighted continued unpredictability in the technology sector, particularly among large-cap tech stocks. Capital Economics warned of rising AI competition from Chinese firms, which presents risks beyond traditional trade concerns.

“The outlook for big tech remains unclear as competitive pressure in artificial intelligence intensifies, especially from Chinese companies,” the firm added.

(Sources: investing.com, reuters.com, ChatGPT)