Strong corporate earnings expectations and robust economic fundamentals! Cantor bets on the AI boom to drive further gains in US stocks

According to Jinse Finance APP, Cantor Fitzgerald investment bank analyst Eric Johnston remains optimistic about the U.S. stock market heading into the end of the year, expecting technology stocks to lead the market higher. The firm's market outlook is based on continuously upgraded corporate earnings expectations and strong economic fundamentals, with artificial intelligence (AI) capital spending serving as the main catalyst for the market rally.

Johnston wrote in a report that ongoing AI infrastructure construction continues to push S&P 500 earnings expectations to new highs. S&P 500 earnings expectations for the next four quarters have now exceeded $389, mainly driven by large cloud computing and technology infrastructure companies' sustained AI-related capital expenditure. He believes that current market expectations for Q3 and Q4 of 2026 remain too conservative, pointing out that Q2 earnings grew by over 30% year-on-year, indicating room for further upward revisions in earnings forecasts.

On interest rates, Cantor expects the bond market to stabilize at 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 believes this dynamic is mainly related to companies increasing debt issuance for AI infrastructure construction and uncertainty surrounding Federal Reserve Chairman Kevin Walsh.

It is noteworthy that, despite rising oil prices, inflation expectations have remained stable. Johnston advises market participants not to bet that the U.S. Treasury will stand idly by as yields rise, since the Treasury has already demonstrated its determination to curb further yield increases through an "operation twist", i.e., increasing buybacks of long-term bonds. He wrote that the current 10-year U.S. Treasury yield is just 37 basis points higher than the average of the past three years; therefore, he believes the current interest rate environment is unlikely to derail AI data center investment plans.

Although U.S. Treasury yields have risen, financial conditions are still among the loosest in the past 30 years, which will continue to support economic activity. The futures market has gradually shifted to align with Cantor's view that the Federal Reserve will maintain rates unchanged. Currently, federal funds futures pricing indicates that the market expects only one rate hike this year, with just a 39% probability of a rate increase in September.

The annualized increase in the core Consumer Price Index over the past three months has been below 2%, further reinforcing Cantor’s judgment—that even if the Federal Reserve eventually tightens monetary policy, this will not signal the start of a rate hike cycle. Johnston pointed out, "We believe the stock market will continue to rise," although the seasonal factors of U.S. midterm election years may bring short-term headwinds in August and September.