Corporate profit expectations and economic fundamentals are strong! Cantor bets on the AI boom driving a further increase in U.S. stocks.

Cantor Fitzgerald's analyst Eric Johnston remains optimistic about the U.S. stock market as we approach the end of the year, predicting that technology stocks will lead further market gains. The firms market outlook is based on ongoing upward revisions of corporate earnings expectations and strong economic fundamentals, with artificial intelligence (AI) capital expenditures being the main catalyst for the market's rise. In a report, Johnston noted that continued investment in AI infrastructure has driven S&P 500 earnings expectations to new highs. The earnings forecast for the S&P 500 over the next four quarters has now risen to over $389, primarily propelled by ongoing AI-related capital expenditures from major cloud computing firms and technology infrastructure companies. He believes that the market currently has overly conservative earnings expectations for the third and fourth quarters of 2026, pointing out that second-quarter profits grew over 30% year-on-year, indicating further room for upward adjustment of earnings expectations. Regarding interest rates, Cantor expects the bond market to calm down from its current levels. The recent rise in U.S. Treasury yields has been driven almost entirely by increases in real yields and term premiums, rather than higher inflation expectations. Johnston argues that this dynamic is closely related to corporations increasing debt issuance for AI infrastructure projects and the uncertainties surrounding Federal Reserve Chairman Kevin Warsh. It is worth noting that despite rising oil prices, inflation expectations have remained stable. Johnston advises market participants not to bet that the U.S. Treasury will sit idly by as yields rise, as the Treasury has already demonstrated its determination to prevent further increases in yields through operation twist, which involves increasing buybacks of long-term bonds. He stated that the current 10-year U.S. Treasury yield is only 37 basis points above the average level of the past three years, suggesting that the current interest rate environment is unlikely to derail AI data center investment plans. Despite the rise in U.S. Treasury yields, the financial environment remains one of the loosest in the past 30 years, which will continue to provide tailwinds for economic activity. The futures market has gradually aligned with Cantors view that the Federal Reserve will maintain interest rates. Currently, the federal funds futures market pricing indicates that the market expects only one rate hike this year, with a mere 39% probability for a rate increase in September. The core Consumer Price Index has risen less than 2% on an annualized basis over the past three months, further reinforcing Cantors judgmentthat even if the Federal Reserve tightens monetary policy, it will not signal the start of a rate-hiking cycle. Johnston pointed out, We believe that the stock market will continue to rise, although seasonal factors in the U.S. midterm election year could pose short-term headwinds for the market in August and September.