By Ian Salisbury

Forget valuations -- the stock market rally still has a lot further to go thanks to strong results from banks and productivity gains from artificial intelligence, according to a prominent Wall Street forecaster.

"We think the S&P 500 will hit 7000 before the end of 2026," predicted Trivariate Research founder Adam Parker in a note Sunday. The forecast represents upside of about 9.6% from Friday's closing level of 6389.

Trivariate predicts financial and healthcare stocks will outperform and recommends that investors scale back on consumer stocks, which could face pressure from tariffs.

In some ways Trivariate's S&P 500 forecast is fairly conservative. The benchmark index for large-capitalization companies historically returns just above 11% a year, so giving it nearly 18 months to achieve a gain that size doesn't seem that aggressive.

But the outlook brushes aside a lot of concern on Wall Street, where investors have been fretting near-record valuations. The S&P 500 is trading at 22 times forward earnings, a level rarely seen since the height of the dot-com bubble. Meanwhile the U.S. economy seems to be slowing thanks to persistent inflation and a softening labor market.

Trivariate argues that the market can continue to climb on the back of earnings and productivity growth. "We think earnings can grow 10% in 2026, fueled by the median company having gross margin expansion, strong results from financials, and multiple proof cases across many sectors of AI productivity," Parker wrote.

Among financial stocks, Parker is bullish on Capital One Financial thanks to its recent $35 billion Discover acquisition, which makes it the U.S.'s largest credit card player, with about 20% market share, and gives it access to a payments network that rivals those of Visa and Mastercard.

Parker also likes Wall Street powerhouses Morgan Stanley, Goldman Sachs, and JP Morgan "for their diversity of income streams including private wealth," according to the note.

Healthcare is another area that's poised for growth, Parker says. While the sector has struggled in 2025, it still stands to benefit from favorable demographics driven by the aging Baby Boomer generation. Healthcare meanwhile, is one of the sectors that stands to gain the most from AI productivity gains.

"So many Healthcare companies are grossly inefficient, and can benefit from predicting their employee and customer behavior better, and reducing costs," he writes.

Among his recommendations in the sector: drug distributors McKesson, Cardinal Health, and Cencora. McKesson was a Barron's stock pick in April. The largest of the three competitors, it tends to enjoy better margins and has an easier time courting big pharmacy retailers.

One sectors Trivariate worries about is consumer discretionary. With a few exceptions -- such as Costco, Walmart, and Amazon -- consumer-goods companies are likely to see profits come under pressure from the Trump administration's tariff regime.

"We just think many companies here are poorly positioned to maintain both topline growth and margins," Parker wrote.

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

August 11, 2025 14:16 ET (18:16 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.