Unfazed by oil prices, long bonds, and rate hikes! Multiple Wall Street institutions remain bullish on US stocks, Yardeni downplays AI slowdown concerns.

Title context: Unfazed by oil prices, long bonds, and rate hikes! Multiple Wall Street institutions remain bullish on US stocks, Yardeni downplays AI slowdown concerns. Text: Despite the escalation of Middle East conflicts pushing oil prices higher, rising long-term US Treasury yields, and growing expectations of a Fed rate hike, most Wall Street strategists still believe that as long as the pace of rate hikes is measured, corporate earnings are strong, and inflation remains anchored, the US stock bull market is likely to continue. Macro headwinds loom overhead, why is Wall Street still bullish? Recently, the escalation of Middle East conflicts sent oil prices surging to nearly $109 per barrel last week, while long-term US Treasury yields hit multi-decade highs. The probability of a Fed rate hike in September also soared. US stocks have been volatile since hitting record highs in mid-August, with investors worried that rising oil prices will exacerbate inflationary pressure. The 10-year Treasury yield came close to 5%, a level often seen as a risk signal for stock market gains. Swap traders are currently pricing about an 87% probability of a Fed rate hike on Wednesday, which would be the first in three years. Nasdaq 100 futures, dominated by tech stocks, fell 1.6% on Monday. Still, the S&P 500 is less than 2% below its peak, supported by strong corporate earnings. Wall Street institutions including Morgan Stanley, JPMorgan, and Goldman Sachs predict that given solid corporate earnings, any decline triggered by Fed rate hike expectations is likely to be short-lived. Ben Snider, chief US equity strategist at Goldman Sachs, said: "Stocks typically struggle when the Fed starts hiking, but we expect the bull market to continue. The market has already priced in more than three rate hikes over the next year, while corporate earnings and balance sheets are both solid." Morgan Stanley strategist Michael Wilson acknowledged that if the inflation shock is stronger than expected, there is a risk of a stock market pullbacka 10% decline from recent highs. As geopolitical tensions in the Middle East persist, oil prices have resumed their rise. However, Wilson added that the economic outlook is crucial. "If strong nominal economic growth is the main driver, then the stock market can tolerate higher long-end yields," he said. "In other words, over the medium to long term, stocks remain an effective inflation hedge." JPMorgan strategists said that in the short term, oil market moves may determine risk appetite. They noted that seasonal trends suggest stocks typically perform weakly in September, but such volatility should not be expected to persist. The team led by Mislav Matejka wrote in a report: "As long as the Fed hikes moderately and against a backdrop of strong earnings growth and anchored inflation, the stock market should be able to withstand it." One analysis shows that what truly threatens a bull market is not a single rate hike, but an entire rate hike cycle. Since 1945, the S&P 500 has experienced 12 bear markets with declines of more than 20%, and 4 near-bear markets with declines between 18% and 20%, of which 6 followed rate hike cycles directly into recession. Only two drawdowns were not caused by the above triggers. S&P 500 target upgrades and divergence: bulls hold firm, BofA and Citi warn of short-term risks Yardeni Research said in a report that despite rising oil prices, bond yields, and Fed rate hike expectations, the S&P 500 has not reacted sharply to macro headwinds. The firm reiterated its year-end S&P 500 target of 8,400. However, Yardeni Research said market dynamics have changed. "In recent weeks, the forward P/E of major market indices has declined because forward EPS growth expectations have outpaced share price gains." The firm said that since the start of the year, S&P 500 forward earnings have risen 28.1%, while the forward P/E has fallen 12.9%, indicating investors are unwilling to pay higher valuations for companies as they were in January. Yardeni Research raised its 2027 EPS estimate from $415 to $425 and lowered its forward P/E expectation from 20.2x to 19.7x. Meanwhile, several institutions have also reiterated or raised their S&P 500 targets over the past week. Last week, HSBC raised its year-end S&P 500 target from 7,650 to 8,100, citing stronger corporate earnings, continued AI investment, and a resilient US economy. HSBC expects S&P 500 earnings growth of nearly 40% in the first half of 2026, and at least 25% in the second half. HSBC said that although tech stocks remain the main DRIVE, resilient consumer spending and strong performance from healthcare, industrial, and consumer goods companies support overall profit growth. However, HSBC also cautioned that autumn seasonal weakness, economic data, regulatory changes, and geopolitical tensions could cause short-term volatility, while emphasizing that strong corporate fundamentals should support further S&P 500 gains. Barclays also raised its 2026 S&P 500 target from 7,800 to 7,950, citing stronger-than-expected second-quarter earnings, while raising its EPS forecast from $337 to $365. The bank said more than 86% of companies beat earnings expectations, with core EPS growing more than 50% year over year. Barclays expects AI-driven investment to continue and forecasts hyperscaler capex of more than $1.1 trillion in 2027, up 67%. Although high bond yields increase the cost of earnings misses, the bank maintained its 2027 index target at 8,800. BofA also joined the target-raising ranks, but with a more cautious stance. BofA equity and quant strategist Savita Subramanian raised her year-end S&P 500 target from 7,100 to 7,400, but the new target still implies about 3% downside from current levels, highlighting the bank's caution on the short-term outlook. Subramanian said the stock market is entering a "seasonally weak period" and may be overdue for a pullback. She noted that the S&P 500 has experienced only one 5% pullback this year, while according to BofA statistics, the average in past years was about three; corrections of at least 10% usually occur once a year, but the last such decline dates back to spring 2025. Below are the 2026 S&P 500 targets from several major Wall Street institutions: It is worth noting that not all institutions are equally optimistic. Citi warned on Friday that its year-end S&P 500 target may be too high, as rising oil prices and bond yields cast a shadow over the US stock market outlook. Strategist Scott Chronert said Citi's current year-end 2026 S&P 500 target of 8,100 looks "aggressive," because macro factors have changed over the past few weeks. Chronert still believes third-quarter earnings should be strong, but for the index to reach the target, under current uncertainty, it would have to rely more on a year-end rally. The analyst also noted that despite the complex and changing economic situation, "the Fed's next rate hike is not a done deal," but reiterated that persistent inflation concerns could mean a rate hike may ease uncertainty, and if the Fed does hike, it may hike twice this year rather than once. AI alone supports the rally, Yardeni: slowdown calls unlikely to stop the capex cycle Most of the S&P 500's gains this year have been driven by the AI boom. Shares of companies such as Micron Technology, Intel, and AMD have posted triple-digit gains in 2026. Meanwhile, the Global X Artificial Intelligence & Technology ETF (AIQ) has also outperformed the S&P 500 this year. The Kobeissi Letter said on X that with the bond market performing so weakly, it is astonishing that the S&P 500 is just a step away from a record high. The firm also said, "Without AI, the S&P 500 would be at least 50% lower right now. Without the oil price spike, the S&P 500 would be above 9,000. AI is single-handedly supporting the global economy." However, divisions within the industry over the pace of AI development are beginning to weigh on investor sentiment. Anthropic CEO Dario Amodei proposed over the weekend slowing AI development to allow more time to address safety issues. OpenAI's Sam Altman and SpaceX's Elon Musk expressed support for stronger regulation. In contrast, the CEOs of Microsoft and Meta opposed slowing development. Altman also said OpenAI will not go public this year. Meanwhile, US President Trump downplayed concerns, saying AI risks can be managed through guardrails. Yardeni Research President Ed Yardeni sought to downplay AI slowdown concerns on Monday. He said the market is worried that tech companies may slow AI development, but this is unlikely to disrupt broader infrastructure buildout. "The reality is that constraints already exist in areas such as building data centers. I don't think infrastructure construction will slow." He maintained his year-end S&P 500 target of 8,400. Yardeni believes the weekend calls to slow AI may be more about establishing safety guardrails than reducing capex. He said that as technology becomes more powerful, stronger guardrails may become necessary, but this does not necessarily weaken the investment cycle. He also noted that productivity data support the AI-driven growth narrative and believes the economy remains in a "productivity-driven technology boom." Yardeni also raised the possibility of stronger US-China cooperation on AI regulation, saying both countries face similar challenges in advancing technology and may have incentives to establish rules around its development. For the market, Yardeni's view is that AI concerns may bring short-term volatility, but are unlikely to stop the infrastructure investment needed to support the technology's continued expansion.