The S&P 500 (NYSEARCA: SPY) can continue to climb its wall of worry because its foundation is built on earnings growth. The bricks are made from FOMC and inflation news bites, which sustain a low level but subsiding fear. The bricks may grow heavy enough to keep the market from rising more, or the wall may become top-heavy and lead to a crash, but that hasn’t happened yet. Because the June PCE price index aligns with an outlook for a soft landing and an eventual interest rate cut, the wall could grow until some other reason to worry emerges. The target today is the S&P 500 at 6,100.
Inflation and the FOMC: Analysts and Revisions Drive the S&P
The June PCE price index was a Goldilocks report, not too hot to inflame fear of inflation and not too cold to raise doubt about economic health. The takeaway is that the “new normal” put in place three years ago is still in place today and that inflation is cooling. In this environment, economic growth and earnings health are spotty but present and sufficient to offset weakness. This means that the S&P 500 returned to earnings growth last year; growth is accelerating in 2024 and is expected to accelerate in 2025.
Inflation is expected to continue cooling. The CME’s FedWatch Tool shows the market pricing in the first interest rate cut will come by November and that two will be possible by the year’s end. That will mark a real economic shift that will sustain, if not improve, the outlook for earnings. The risk with the earnings outlook is that the market is front-running. It will start looking to 2026 as soon as the fall, which could alter the outlook if earnings growth is forecasted to stagnate. Until then, analysts are raising their estimates for earnings and stock prices and leading the S&P 500 higher.
Big Tech and Mag Seven Lead a Concentrated Market
Big Tech and Magnificent Seven have led the market for the last few years and will continue to do so in the second half. Analysts are supportive and continue raising their estimates for these stocks because of their position in the AI industry.
Wedbush sees the S&P 500 rising another 15%. In their view, index growth will accelerate as expanding use cases for AI broadens the market for today’s AI leaders and leads to a broader rally in tech. The analysts' top two choices are NVIDIA (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT), which have emerged as the leaders in the enterprise AI industry, but most Mag Seven names are included in their forecast. Others, like Apple (NASDAQ: AAPL), are well-positioned to monetize AI while using it to widen margins. Productivity and automation will emerge as central themes.
NVIDIA, Microsoft, and Apple are the three largest components of the S&P 500, comprising 22% of the index, and their analysts are raising targets. Morgan Stanley is the latest to update on NVIDIA, and it has raised its estimates for earnings and share prices based on channel checks in Asia.
According to Morgan Stanley (NYSE: MS), demand for NVIDIA’s Hopper line remains robust and will sustain revenue and earnings power during the transition to Blackwell. That will be next year. Morgan Stanley’s new target is $144, a 20% gain from today’s level, and it is not the highest target issued. That belongs to Rosenblatt and is another 35% of upside. Likewise, Microsoft analysts are supporting its market and leading to the high end of their range, a 20% upside for its stock. Apple is forecasted to rise nearly 30% at the high end of its target range.
The S&P 500 Has Room to Run
The S&P 500 trades near a critical resistance point but will likely move higher soon. The rally is technically strong, the chart shows a budding buy signal, and earnings season is near. Microsoft and many Mag Seven names report mid-to-late July, while NVIDIA and many semiconductor stocks report later in August, so index results could create a new high and sustain a rally over the summer. Assuming the market sets a new high, the rally could last through year’s end. The technical target is 6,100 but may be surpassed because Wedbush’s target is closer to 6,250. 
