Recent economic data released by the Bureau of Economic Analysis revealed that the U.S. gross domestic product (GDP) expanded at an annualized rate of 4.3% in the third quarter, exceeding analysts' expectations of 3.3%. This growth rate notably outpaces the decade-long average of 2.7%, signaling a period of strong economic momentum despite challenges posed by trade policies.
The elevated GDP growth contrasts sharply with the highest unemployment rate observed in over four years, a development largely attributed to the tariffs implemented under President Donald Trump's administration. Many economists initially warned such tariffs, which have increased average import taxes to 16.8%—the highest since 1935—might trigger a sharp economic downturn.
Although supporters have highlighted this economic performance as evidence of policy success, some experts caution that the high GDP figures may be distorted by temporary trade factors. Specifically, the spike in economic activity could partly reflect businesses accelerating inventory imports before tariffs took effect, leading to unusually low imports in the third quarter. As imports are subtracted in GDP calculations, this factor artificially inflates the growth measurement.
Nonetheless, the economy's resilience is evident in other metrics. Consumer spending and business investments have contributed to robust performance, and the S&P 500 index has risen approximately 18% year to date, reflecting investor confidence in continued expansion.
Looking ahead to 2025 and 2026, analysts project accelerating earnings growth for companies within the S&P 500. Data from LSEG indicates estimated earnings growth of 13.2% in 2025, up from 12.1% in 2024, with expectations rising to 15.5% in 2026. This trajectory is largely propelled by the information technology and communications services sectors, forecasted to grow earnings by 25.4% and 20.5% respectively in 2025.
These technology-driven sectors anticipate even greater expansion in 2026, with information technology earnings projected to increase by 30.4% as demand intensifies for artificial intelligence (AI) hardware and software.
Analyzing market forecasts, FactSet Research aggregates over 12,600 individual stock ratings from Wall Street analysts to establish a "bottom-up" median target price for the S&P 500. Currently, this target stands at 8,011 points, suggesting a potential 15.5% rise over the present level near 6,930.
Within more bullish scenarios, prominent financial institutions have posited higher targets for the S&P 500 by the end of 2026, contingent on favorable economic conditions. JPMorgan Chase strategists envisage the index reaching 8,200 points, assuming strong earnings outcomes and significant Federal Reserve interest rate cuts facilitated by moderating inflation. Their favored stock picks in this scenario include Alphabet, Arista Networks, and Broadcom.
Similarly, Evercore anticipates the S&P 500 could attain 9,000 points, provided trade uncertainties diminish, AI productivity gains materialize, and the Federal Reserve implements larger-than-expected rate decreases. Their highlighted companies are Microsoft, Oracle, and Snowflake.
Morgan Stanley projects a similar 9,000-point milestone should tariff-driven challenges abate, reflected in cooling inflation and improved employment figures, coupled with investors embracing a forward earnings multiple of 23. Top selections from Morgan Stanley include Amazon, Astera Labs, and Nvidia.
Even with these optimistic forecasts, other institutions offer strong but more conservative base-case targets. For example, Oppenheimer predicts the S&P 500 will reach 8,100 points with leading positions in Alphabet, Microsoft, and Nvidia.
However, historical accuracy of Wall Street's S&P 500 predictions warrants careful interpretation of these forecasts. An analysis by Goldman Sachs highlighted a median deviation of approximately 18 percentage points between forecasted and actual year-end returns over the 2020-2024 period. This track record advises prudence when considering 2026 market projections.
In summary, the U.S. economy demonstrated robust expansion in the face of significant tariff-induced obstacles, fostering a positive outlook for corporate earnings and stock market performance over the next two years, especially underpinned by growth in AI-related sectors. Yet, the historical volatility in forecasting accuracy and the evident risks connected to trade policies and inflation dynamics imply that investors should balance optimism with awareness of ongoing uncertainties.