LIVE MARKETS-Stifel sees S&P 500 in 6,500-7,500 range for 2026, urges defensive tilt

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STIFEL SEES S&P 500 IN 6,500-7,500 RANGE FOR 2026, URGES DEFENSIVE TILT

Stifel expects the S&P 500 .SPX to navigate a narrow corridor of 6,500 to 7,500 next year as persistent macro risks temper optimism following 2025's AI-driven boom.

The firm's chief equity strategist Barry Bannister outlines gains of about 9% and losses of roughly 5% from current levels.

The bullish scenario hinges on 13% EPS growth in 2026 and only modest P/E compression, supported by lingering benefits from the 2025 tax law, which could add 50 basis points to mid-2026 growth.

Bannister notes that a 9% gain would match the S&P 500's long-term average annual return. Despite Big Tech's dominance, Stifel argues the market is not in bubble territory, remaining 37% below its two-century trend peak.

The bear case reflects a 25% recession probability, driven by consumer fragility - personal consumption accounts for 68% of GDP - and a tenuous labor outlook.

Slowing wage growth and fading job vacancies could drag spending to early-2010s levels. Stifel warns that valuation risk looms large, with the equity risk premium sitting in the 92nd percentile of the past 65 years.

Speculative assets have already cracked, and hyperscaler capex is eroding free cash flow, pressuring P/E ratios, the firm adds.

Tactically, Stifel advises hedging Big Tech-heavy cyclical growth exposure with defensives such as healthcare, staples, and software.

Stifel sees no smooth hand-off from tech-led gains to broad cyclicals, underscoring the need for caution as the economy and markets enter 2026.

(Joel Jose)

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