Strong corporate profit expectations and economic fundamentals! Cantor is betting that the AI boom will drive US stocks to rise again

The Zhitong Finance App learned that Eric Johnston, an analyst at the investment bank Cantor Fitzgerald, is still optimistic about the US stock market as it enters the end of the year, and expects technology stocks to lead the market to a further rise. The bank's market outlook is based on continued rise in corporate profit expectations and strong growth in economic fundamentals, and artificial intelligence (AI) capital expenditure is the main catalyst driving the rise in the market.

Johnston wrote in a report that AI infrastructure construction continues to drive the S&P 500 index's profit expectations to a new high. The profit forecast for the S&P 500 index for the next four quarters has now risen above $389, mainly driven by the continuous AI-related capital expenditure of large cloud computing companies and technology infrastructure companies. He believes that the current market's profit expectations for the third and fourth quarters of 2026 are still too conservative, and pointed out that second-quarter earnings increased by more than 30% year-on-year, which indicates that there is still room for further increase in profit expectations.

In terms of interest rates, Cantor expects the bond market to calm down from current levels. The recent rise in US bond yields is almost entirely driven by rising real yields and term premiums, rather than higher inflation expectations. Johnston believes that this dynamic is mainly related to the increase in corporate debt issuance for AI infrastructure construction, as well as the uncertainty surrounding Federal Reserve Chairman Kevin Walsh.

Notably, inflation expectations have remained stable despite rising oil prices. Johnston advised market participants not to bet that the US Treasury would sit idly by and ignore rising yields, as the Treasury has unleashed determination to curb further increases in yield through an “operation twist” (operation twist), that is, to increase repurchases of long-term bonds. He wrote that the 10-year US Treasury yield is currently only 37 basis points higher than the average of the past three years, so he believes that the current interest rate environment will hardly derail AI data center investment plans.

Despite rising US bond yields, the financial environment remains at one of the most relaxed levels in the past 30 years, which will continue to provide a smooth wind for economic activity. The futures market has gradually moved to agree with Cantor that the Federal Reserve will continue to keep interest rates unchanged. Currently, federal funds futures market pricing shows that the market is expected to raise interest rates only once this year, while the probability of raising interest rates in September is only 39%.

The core consumer price index has increased less than 2% per annum over the past three months, further strengthening Cantor's judgment — even if the Federal Reserve finally tightens monetary policy, this will not mean the beginning of a cycle of interest rate hikes. Johnston pointed out, “We believe that the stock market will continue to rise,” although seasonal factors in the US midterm election year may bring short-term headwinds to the market in August and September.