Capital Economics strategists told clients that recent quarterly results offer reasons to be optimistic about the S&P 500's prospects for the remainder of the year. In a client note, the team - which includes Thomas Mathews - said the latest corporate returns make it "clear that 2025 was a good year."
Central to their assessment is the performance of the information technology sector. When accounting for stronger-than-expected results from Nvidia, which represents a sizable share of the U.S. equity market, the strategists estimate that aggregate earnings per share for the S&P 500's major IT cohort rose by roughly 25% last year. They emphasize that this pace would be "significantly faster than 2024," countering earlier concerns that earnings growth might be slowing.
Beyond technology, the Capital Economics team reports a "firming up" in health care, industrials and financials. These sectors together represent the largest groups outside of tech, and their stabilization leads the strategists to suggest that the index may now have "more of a cushion for the S&P 500" should technology profits cool in the months ahead.
The note addresses industry-level turbulence tied to the adoption of new artificial intelligence models and the heavy capital spending by mega-cap companies on AI infrastructure. Despite those worries, the strategists continue to anticipate double-digit aggregate earnings growth for the S&P 500 this year, with technology firms expected to be among the strongest performers. "Once again, tech companies seem set to fare especially well," they wrote.
On the question of winners and losers from AI-related disruption in software, Capital Economics portrays the broader impact as "not necessarily dire." The strategists argue that if some software company profits are eroded, those returns could be captured elsewhere - namely by a combination of companies selling access to AI models and firms that previously purchased the software.
Valuation expansion is another element of their outlook. The strategists note that the S&P 500's price-to-forward earnings ratio "has not increased, on net, in almost two years." Given the recent earnings strength and the potential reallocation of profits prompted by AI developments, they suggest the multiple could move higher. On that basis, Capital Economics projects the S&P 500 will finish the year at 8,000. For context, the index closed at 6,946.13 on Wednesday.
What the note highlights
- Strong 2025 earnings season, with IT EPS growth of about 25% after including Nvidia's results.
- Signs of improvement in health care, industrials and financials, which provide broader support beyond tech.
- Expectation of continued double-digit aggregate earnings growth for the S&P 500 this year and scope for valuation expansion.
Capital Economics' assessment blends sector-level earnings momentum with valuation dynamics to make a constructive case for the index. Their forecast rests on observed quarterly results and the potential redistribution of profits as AI-related business models evolve, without assuming any specific, unreported developments beyond those described in the client note.