Analysts Boost S&P 500 Target: ETFs in Focus

Barclays recently upped its 2025 year-end target for the S&P 500 to 6,450 from 6,050, its second in three months, reflecting stronger-than-expected corporate earnings, decent U.S. economic growth and optimism around artificial intelligence, per Reuters, as quoted on Yahoo Finance. The Reuters article indicated that Citigroup and HSBC also walked this bullish path.

After undergoing a rough phase in the early part of 2025 (due to trade tensions and occasional ups and downs in Big Tech stocks), the S&P 500 started to bounce back from May. The index hit a record high in August. The S&P 500 is up about 12.2% so far this year (as of Sept. 12, 2025).

Evercore ISI strategist Julian Emanuel expects the S&P 500 to reach the 7,750 mark by the end of 2026, as quoted on Yahoo Finance. Per the strategist, the artificial intelligence (AI) boom is expected to drive this rally.

Let’s delve a little deeper.

Corporate Earnings Strength

The second-quarter earnings season (with 95% of results reported) reflected steady progress. Not only did an above-average share of companies surpass estimates, but the outlooks for the current and upcoming periods were also revised upward, per the Earnings Trends report issued on Aug. 27, 2025.

Total third-quarter earnings of the S&P 500 index are expected to be up 5% from the same period last year on 6% higher revenues, per the Earnings Trends issued on Sept. 3, 2025. Out of the 16 sectors, while third-quarter estimates for the 11 sectors have been under pressure, the favorable revisions trend for the Tech and Finance sectors is more than enough to make up for their effect on the aggregate trends at the index level, as these two sectors alone constitute more than 50% of the index’s total earnings.

Overall,S&P 500 earnings are expected to grow 9.1% in 2025, 12.2% in 2026 and 13.6% in 2027,per the Earnings Trends issued on Sept. 3, 2025.

AI Boom to Keep Powering S&P 500

Big Tech or the “Magnificent 7” stocks that are pioneering the AI boom (NVIDIA, Microsoft, Apple, Alphabet, Meta, Amazon, Tesla) make up about 35% of the S&P 500 market cap. For the Magnificent 7 group, Q3 earnings are expected to be up 11.4% from the same period last year on 14.5% higher revenues, per Earnings Trends issued on Sept. 3, 2025.

Third-quarter earnings of the S&P 500 index would be up only 3.1% from the same period last year if the Mag 7 group’s substantial earnings contribution is excluded (vs. +5% otherwise).This data explains how the AI revolution is driving the S&P 500.

Likely Fed Rate Cuts

The Fed will likely cut interest rates in September after Chair Jerome Powell hinted at a reduction in his highly anticipated Jackson Hole speech. There are 93.4% chances of a 25-bp rate cut in September, per the CME FedWatch Tool, while 6.6% chances are for a 50-bp rate cut (at the time of writing).

If the Fed starts easing policy (albeit at a moderate pace), which could be the case ahead, given President Trump’s inclination for a lower rate, a softer labor market and still-contained inflation rate amid tariffs, the stock market should surge in the coming days.

Moderate U.S. Economic Strength 

The U.S. economy grew at an annualized rate of 3.3% in second-quarter 2025, a sharp rebound from the 0.5% slump in the first quarter, according to second estimates, as quoted on tradingeconomics. The figure was revised slightly higher from the first estimate of 3%, mainly due to upward revisions to investment.

Consumer spending (which makes up about 70% of the U.S. GDP) and private investment were a bit stronger-than-first-expected in the second quarter, per APNews, as quoted on Yahoo Finance.       

S&P 500 ETFs in Focus

Against this mixed backdrop, investors may consider tracking S&P 500 exchange-traded funds (ETFs) such as Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV, SPDR S&P 500 ETF Trust SPY and Invesco S&P 500 Momentum ETF SPMO.

Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF SPYG and the value part of the index with SPDR Portfolio S&P 500 Value ETF SPYV. SPDR Portfolio S&P 500 High Dividend ETF Fund SPYD is a good bet for the dividend plays of the index.

Investors with an appetite for risk can bet on leveraged S&P 500 ETFs, such as Direxion Daily S&P 500 Bull 3X Shares SPXL, ProShares Ultra S&P500 SSO and ProShares UltraPro S&P500 UPRO, if the index is on an uptrend. However, if the S&P 500 falls by any chance, inverse ETF ProShares Short S&P500 ETF SH will rise.

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This article originally published on Zacks Investment Research (zacks.com).

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