Wall Street has already made some bold predictions for the stock market in 2026, but JPMorgan's latest forecast has raised the bar even higher.

Earlier this week, Deutsche Bank projected the S&P 500 to reach 8,000 by next year—a staggering estimate. However, JPMorgan strategists have gone further.

Led by Dubravko Lakos-Bujas, the team expects earnings growth to remain above-trend at 13%–15% "for at least the next two years." This baseline forecast—roughly in line with the current median projections—assumes the Federal Reserve will cut rates twice more in early 2025 before pausing.

While the team sets a base year-end 2026 target of 7,500 for the S&P 500 (SPX), strategists noted, "If the Fed eases further due to improving inflation dynamics, we see upside potential pushing the index beyond 8,000 in 2026."

This bullish outlook is part of JPMorgan’s near-fearless prediction. Lakos-Bujas and his colleagues argue that "American exceptionalism" remains undeniable, with the resilient U.S. economy and an AI-driven supercycle poised to sustain its role as the "engine of global growth" next year.

They highlight how this supercycle is fueling record capital expenditure (capex), rapid earnings expansion, and "unprecedented" market concentration in AI beneficiaries and high-quality growth companies—those with strong margins, robust cash flow growth, disciplined capital returns, and low credit risk.

Addressing concerns over stretched AI valuations, the strategists defended the 30x forward P/E of top 30 AI stocks, arguing they offer "superior earnings visibility, greater pricing power, lower balance sheet leverage, and a track record of returning capital" compared to the S&P 470, which trades at 19x.

On capex—a frequent trigger for market pullbacks—the team expects AI-related spending among these 30 firms to grow 34% next year, with AI adoption broadening across sectors.

The "Fear of Becoming Obsolete" (FOBO) mindset is driving businesses and governments to invest in AI, extending its momentum beyond tech and utilities into banking, healthcare, and logistics. The team remains bullish on tech, media, telecom, utilities, and defense, while expecting banks and pharmaceuticals to outperform—though they remain neutral on broader financials and healthcare.

Lakos-Bujas’ team also anticipates higher shareholder payouts and looser fiscal policy under potential legislative easing, which could attract investors. They added that earnings growth linked to deregulation and AI-driven productivity gains remains "underappreciated."

However, they caution that this AI-driven expansion is unfolding in a "K-shaped, bifurcated economy," creating a "winner-takes-all" market—a potential downside. "In such an environment, broad sentiment indicators may remain prone to sharp swings, as seen this year and recently," they noted.

Next year’s market dynamics, they argue, will resemble 2025’s, with continued extreme crowding and record concentration in this year’s top performers.

Beyond AI, strategic resource stocks—such as rare earths and uranium—should maintain momentum amid U.S.-China competition, supply chain diversification, and AI’s energy demands. Deregulation could also spur new opportunities in finance, housing supply chains, and energy, while tariff-sensitive stocks may offer tactical plays.

Investors are advised to exercise caution, as market conditions remain volatile.