Still up and to the right

US earnings momentum should continue, supporting higher S&P 500 earnings and prices through 2028 despite a more capital-intensive AI investment cycle.

• Positive earnings revisions have lasted 21 consecutive weeks, the longest stretch since 2021, after first-half 2026 results exceeded Federated Hermes’ already street-high expectations.
• The firm raises its 2026 S&P 500 earnings estimate to $370 from $340, while forecasting roughly 15% growth and earnings of $425 in 2027 and $490 in 2028.
• Revenue growth and margin expansion are driving the outlook; margins have risen about 9% over the past year, the strongest pace since the 1995–1999 dot-com bull market.
• Federated Hermes expects 2029 earnings of $540, implying 10% growth as depreciation, easing AI bottlenecks, slower capital spending and a return to trend economic growth moderate the cycle.
• The firm keeps a 20x fair-value multiple, lowered from 22x because hyperscalers are shifting from asset-light to asset-heavy models, producing S&P 500 targets of about 8,500 for 2026, 10,000 for 2027 and 11,000 for 2028.

Takeaway: The outlook remains constructive, with projected upside of 10% over the coming months, 17.5% in 2027 and 10% in 2028; a near-term correction would be viewed as a buying opportunity, although inflation, Fed hikes, higher long-term yields, Iran and the US midterms remain risks.