Still up and to the right

US earnings have surprised to the upside, driven by AI infrastructure build-out and economic resilience. Federated Hermes now projects S&P 500 earnings to reach $370 in 2026, an increase from their prior $340 estimate. This momentum continues, with positive earnings revisions for 21 consecutive weeks, the longest stretch since 2021.

This upward revision lifts their 2027 and 2028 earnings estimates to $425 and $490, respectively. The firm maintains a 15% earnings growth forecast for these years, driven by strong revenue growth and margin expansion not seen since the late 1990s dot-com boom. They see a 20x earnings multiple as a reasonable fair value, leading to S&P 500 price targets of 8,500 for 2026, 10,000 for 2027, and 11,000 for 2028.

Federated Hermes views the current market constructiveness as sustainable, even with potential headwinds like inflation and Fed rate hikes. They consider near-term corrections as buying opportunities, believing earnings momentum and economic resilience will persist. However, they acknowledge potential deceleration in 2029 due to maturing capex cycles and easing AI bottlenecks.