Jefferies stays bullish on S&P 500, sees 9,000 by end-2027

Investing.com reports that Jefferies maintains a bullish outlook on the S&P 500, predicting the index to reach 9,000 by the end of 2027. This projection is based on stronger-than-expected corporate earnings and continued investment in artificial intelligence, which can counteract risks from inflation, higher oil prices, and elevated bond yields.

Jefferies sets an 8,000 year-end target for the S&P 500 in 2026, citing 35% earnings growth and $373 in earnings per share (EPS). Their forecast for 2027 sees the index at 9,000, assuming $450 in EPS and 20.8% earnings growth.

The brokerage attributes the improvement in earnings outlook to a sharp rise in consensus 2026 earnings growth from about 13% to 29%. This growth surge is widespread, expanding beyond the "Magnificent 7" and reaching approximately 24% for 2026 across the rest of the S&P 500. AI and data-center exposure firms account for roughly 46% of the S&P 500, with earnings expected to grow by about 60% in 2026.

While growth for AI-related companies is projected to slow to 24% in 2027, the brokerage anticipates both AI-related firms and the rest of the index to maintain double-digit earnings growth.

Despite an elevated market valuation, Jefferies believes the bullish outlook is primarily driven by the earnings narrative. The S&P 500 trades at about 21.5 times forward earnings, whereas Jefferies anticipates a lower 20-times multiple for its 2027 target, indicating that the bullish sentiment does not hinge on substantial valuation expansion.

Nevertheless, rising Treasury yields pose a significant risk, as the 10-year yield has surged more than 60 basis points this year, historically correlating with a contraction in equity-market multiples when increases exceed 100 basis points in a year.

Jefferies also expects the market to diversify beyond mega-cap technology, noting that only about 36% of S&P 500 stocks outperformed the index over the past year, far below the long-term average of 47%. However, stronger earnings growth across various sectors could enhance market breadth as investors shift focus toward 2027. Jefferies has overweight positions in technology, financials, healthcare, and materials.

Technology is anticipated to experience the strongest earnings growth, while financials may benefit from higher long-term rates and increased capital-markets activity. Healthcare is one of the few sectors projected to see accelerated earnings growth in 2027, while materials could gain from stronger commodity prices. Conversely, Jefferies is more cautious about communication services, consumer discretionary, and real estate due to weaker earnings or revision trends, elevated valuations, sluggish consumer confidence, and heightened sensitivity to interest rate increases.

The brokerage outlines three scenarios for 2027: a base-case target of 9,000, a bear case of 6,900, and a bull case of 10,500. The report identifies the primary downside risk to its outlook as a meaningful deterioration in earnings expectations, especially among AI-related companies.