Everything related to breaking through 7,000 points has been set up! The S&P 500 is poised to hit this milestone

According to the Zhitong Finance APP, as a seasonal volatility has basically passed, bullish hedge funds and institutional investors on Wall Street are lining up to bet that the S&P 500 index will soar above 7,000 points. This benchmark stock index closed at a record high of 6,875 points on Monday, primarily due to positive signs in US-China trade, strengthened expectations for interest rate cuts, and significant boosts from upward revisions in corporate earnings related to AI. In this macro context, some bullish forces emphasize that in addition to the aforementioned positive catalysts, there are other important factors that could jointly drive the index to break through the psychologically significant milestone of 7,000 points.

First, the increasingly focused capital flow data shows that retail and institutional investors are continuously pouring into the US stock market, and more importantly—technical analysis indicators show that there is very weak technical resistance before this round number milestone. As a seasonal peculiarity—September and October are often weak periods for the stock market, however, the past week has been the most favorable week for the stock market in the last 75 years. Whether it is fundamental expectations, technical aspects, capital flows, or historical flow data, everything has been fully laid out, and the S&P 500 index breaking through the 7,000-point super barrier may happen in the recent trading days.

“There is no shortage of catalysts driving risk assets higher,” wrote Michael Romano, head of hedge fund equity derivatives sales at UBS Securities, in a research report to clients on Sunday. “What was once seen as a ‘blue sky scenario’ of 7,100 points by year-end is rapidly becoming the market's baseline scenario, as the market has priced in next year's upward expectations.”

For some cautious investors, this optimistic sentiment will undoubtedly face a severe test this week, as five of the seven tech giants that have driven the bull market in US stocks since 2023 and hold high weight in the S&P 500 index will announce their earnings after the US stock market closes on Wednesday and Thursday Eastern Time.

Regarding current market earnings expectations, the vast majority of analysts and investors are very optimistic about these tech giants, and options market activity shows that investors are generally betting that the performance announcements of these giants will drive US stocks into a new bull market trajectory. In addition, several major central banks globally, including the Federal Reserve, the Bank of Japan, and the European Central Bank, will also make monetary policy decisions this week.

Investment institutions on Wall Street are mapping out the path for the S&P 500 index to reach new highs.

If the tech giants perform well this week, US stocks are poised to break through 7,000 points and enter a new bull market.

During a time of significant uncertainty regarding Trump's tariff policies on China, the US government shutdown, and the increasing debt of developed countries, the earnings disclosure season for US stocks is crucial. From the latest general expectations of Wall Street analysts and the earnings that have been disclosed, the "Magnificent Seven" tech giants, which hold high weight in the S&P 500 index, along with leaders in the AI computing power industry such as Broadcom and AMD, are expected to deliver strong performances Promoting the continuous innovation high process of the US stock market.

Since 2023, the unprecedented AI investment boom driven by the long-term bull market narrative of AI computing power has become the core logic for the US stock market, dominated by the "seven major tech giants," and the increasingly high weight of tech stocks in the global stock market reaching new highs. Based on the current core trend indicators and the performance and news dynamics regarding the AI bull market, the AI-driven global stock market bull run is still ongoing.

Wall Street analysts have been busy this month raising profit expectations for US companies, especially for AI computing power leaders and tech giants, pushing an indicator tracked by Yardeni Research that measures the "ratio of net upward adjustments to total performance expectation changes" to its highest level in four years.

The latest readings compiled by Yardeni Research generally reflect the warming performance growth optimism among Wall Street analysts, with sustained positive values—indicating an increase in upward adjustments over the past three months—showing that market bullish sentiment is strong. The NERI turned positive in August for the first time in nearly a year, as analysts' confidence in the profit growth momentum of US companies, especially in the tech sector, has been increasing.

Currently, "corporate profits, not macro" holds a core influence in the pricing of the global stock market, and Wall Street's confidence in US corporate profits is significantly warming, especially for the tech giants driving this round of the US stock market bull run and the leaders of the AI computing power industry ("seven major tech giants" and core AI computing power companies like Broadcom, AMD, TSMC, etc.)—which are still at the intersection of positive upward revisions and exceeding expectations, providing strong "performance fundamental driving force" for the US stock market and major global benchmark indices to continue reaching new highs.

The Federal Reserve announced another interest rate cut this week, which seems certain, so if the US stock market can get through this performance test of tech giants, seasonal factors appear to be very favorable. The last few weeks of the year tend to favor upward valuations of risk assets. Statistics from Goldman Sachs' trading department show that since 1985, the Nasdaq 100 index has averaged an 8.5% increase from October 20 to the end of the year, while the average return of the S&P 500 index is about 4.2%.

From a more distant and direct historical statistical perspective, according to UBS's data on the rolling weekly average returns of the S&P 500 index since 1950, the last week of October is often one of the best single-week periods for going long on stocks.

From a technical perspective, analysts also believe that the S&P 500 index still has room for upward movement. John Kolovos, chief technical strategist at Macro Risk Advisors, stated that the next resistance level for the S&P 500 index is close to 7,000 points, just 1.8% higher than Monday's close, indicating a low difficulty for a technical breakout.

"That would be a crucial milestone; if the index successfully breaks through, 7,500—7,700 points will become the next major target level," the strategist said.

Alexander Altmann, head of global equity tactical strategy at Barclays, believes that the S&P 500 index could reach 7,250 points by the end of December this year. The core bullish logic cited by this strategist is that the index's average annual absolute change over the past five years has been about 23% The so-called capital flow data also looks very favorable, as the main investor group is fueling the strong rally in the U.S. stock market. According to statistics from Citadel Securities, retail investors, who account for 22% of U.S. stock trading volume, have been net buyers in 23 out of the past 27 weeks.

With the earnings season for U.S. stocks that began in mid-October, stock buybacks by listed companies, which had been temporarily paused due to regulatory guidelines, have been allowed to resume. Goldman Sachs' trading team pointed out that the fourth quarter has historically been the most active period for stock buybacks by listed companies.

Cautious hedge funds are also flocking in

Even hedge funds, which have long been cautious about strategies in the stock market during high periods, unexpectedly turned into net buyers of U.S. stocks after experiencing two consecutive weeks of heavy selling. With last Friday's CPI inflation data being milder than market expectations, enhancing bets on the Federal Reserve's continued rate cuts, they chose to follow the bulls in the U.S. stock market and buy stocks heavily.

However, this does not mean that the U.S. stock market, which has risen 38% since the April low benchmark and pushed tech stock valuations to levels typically seen during market bubbles, is without risks.

Although U.S. corporate performance has been better than market expectations so far, the upcoming earnings reports from Microsoft, Alphabet (Google's parent company), Meta Platforms (Facebook's parent company), Amazon, and Apple—these tech giants account for about a quarter of the S&P 500 by market capitalization—still pose significant uncertainties for the U.S. stock market regarding their core performance metrics and their latest developments and revenue processes related to AI, despite Wall Street's increasing optimism about these giants' performance and AI-driven growth.

"If there are any disappointing performance signs or questions about whether AI capital expenditures are worthwhile, I expect investors will quickly punish them," said Dave Mazza, CEO of Roundhill Financial Inc.

On the other hand, this asset management CEO noted that as Wall Street analysts continue to revise earnings data upward, as long as their performance slightly exceeds expectations, it could bring the bulls to the coveted 7,000-point mark in just a few days. "These could be the heavy sparks that keep this rally burning; if their performance is strong, the S&P 500 is expected to reach 7,000 points this week."

In terms of longer-term expectations, Julian Emanuel, an analyst from the well-known Wall Street firm Evercore ISI, predicts that driven by the epoch-making transformation of artificial intelligence (AI) technology, which is a "once-in-a-generation" change, the S&P 500 index will rise to 7,750 points by the end of 2026, with an expected potential increase of about 20%.

Overall, Emanuel's long-term outlook is more optimistic, emphasizing that the proliferation of AI will drive both corporate earnings and valuation increases. Emanuel stated that during this process, a 10% or more pullback in the S&P 500 index is possible, but he believes that such pullbacks are buying opportunities in the context of a structural bull market This analyst's prediction for a bull market scenario in the U.S. stock market is more aggressive: Emanuel predicts that if an "AI-driven asset bubble" occurs, the S&P 500 could even rise to 9,000 points