Barclays believes the stock market will perform better than anticipated this year.
One large bank is avoiding the anxiety as more analysts consider the impact of the crisis on financial markets and many investors withdraw amid the escalating U.S.-Israel battle with Iran.
Barclays U.S. stock analysts increased their price forecast for the S&P 500 SPX by the end of the year from 7,400 to 7,650 on Tuesday, citing secular rise in artificial intelligence and a strong U.S. economy as reasons to increase corporate profits.
Under Venu Krishna’s leadership, the strategists acknowledged that “the macro backdrop has become more fragile” due to “war in the Middle East, AI disruption and emerging stress in private credit.”
However, for three reasons, they have increased the projected total S&P 500 earnings per share for this year from $305 to $321.
First, due to AI-related demand, Big Tech and the larger technology, media, and telecoms sectors continue to outperform profits estimates and improve guidance, according to the fourth quarter results season of 2025.
Third, sticky inflation supported by rising oil prices “should lift nominal EPS, especially for industrials, energy and pricing-power franchises,” according to Barclays, while industrial production in the United States is still improving.
The Barclays team emphasized that its increase in the S&P 500 price target is not due to an increase in valuation multiples, but rather to improved earnings that align with Wall Street consensus.They stated, “We’re lowering fair value multiples overall to account for increased uncertainty in outcomes for both macro and AI; our PT goes up on a stronger earnings base, not rerating.”
In fact, Barclays stated that it perceives a higher risk of its bearish scenario, in which the S&P 500 falls to 5,900, than its bullish scenario, in which the S&P 500 hits 8,200, due to the uncertainty surrounding private credit and the effect of rising commodity prices on the Federal Reserve’s reaction function.
However, Barclays believes that more balanced investor positioning could benefit markets. “Long-only funds have reduced exposure, hedge funds de-grossed moderately, and systematic risk appears more symmetric…there is more dry powder than at the start ofthe year, but the pendulum has not yet swung to under-allocated,” the analysts stated.
Industrial sectors were upgraded from neutral to positive by Barclays due to a recent decline in valuation multiples, “a durable cyclical backdrop, and an inflection in manufacturing activity.”
Barclays improved the energy and materials sectors from negative to neutral. Parts of the material complex “are benefiting from rising capex and supply constraints tied to the energy transition and resource nationalism, which are pushing up prices for base and industrial metals,” they stated.
Due to price increases, the energy industry has performed exceptionally well this year, and Barclays strategists understand that this implies a fairly aggressive prognosis for oil for the majority of the year. “However, the longer the conflict drags on, the greater potential for lasting upward price pressure on crude beyond the end of hostilities,” they stated.
