US Stocks Rally Again: AI Trading Cooling and Capital Rotation Coexist, Institutions Raise S&P 500 Targets Collectively

Keywords: US Stock, S&P 500, Artificial Intelligence, Earnings Expectations, Capital Rotation, RBC, JPMorgan, Valuation Expansion, Cyclical Sectors, Market Style Shift

US stocks rebounded across the board on Monday, with market sentiment warming again after last week's chip stock weakness and index divergence. On the surface, this may be just a common rebound repair; but from fund flows and institutional opinion changes, it reflects two more noteworthy signals: first, investor pursuit of AI themes is becoming more rational, with trading heat based solely on sentiment and imagination beginning to cool; second, market funds are rotating from highly crowded tech growth sectors to cyclical, value, and some undervalued industries, significantly broadening the rally's breadth.

Against this backdrop, multiple Wall Street institutions have collectively raised their S&P 500 index targets, sending a positive signal about the medium-term trend of US stocks. Although short-term earnings season volatility, geopolitical conflicts, and policy uncertainty may still cause swings, with AI-driven continuous upward earnings revisions, the overall US stock market still has conditions to reach new highs.

1. Market Moves from "Single-Point Hype" to "Broadening Rally"

Recently, the core engine of US stock gains has been highly concentrated in AI-related assets, especially chips, computing power, and cloud services. While such a structural rally is strong, it also brings typical problems: rapid valuation escalation, rising fund crowding, and increasing sensitivity to positive news. Any earnings miss or signal of capital expenditure slowdown can trigger a pullback.

The weakness in chip stocks last week precisely reflects the market beginning to reprice the boundaries of the AI logic. Unlike earlier phases where "any tie to AI meant a rise," investors now focus on how much real profit AI can bring, whether the pace of earnings delivery is fast enough, and whether high valuations can be digested by sustained growth. In other words, the market is shifting from "storytelling" to "performance verification."

At the same time, the signs of capital rotation are increasingly apparent. Developed overseas markets, value-style stocks, and some cyclical sectors have strengthened recently, indicating that funds are not leaving equities but seeking new cost-effective assets. This change means the driving force of US stock gains is transitioning from a single tech theme to a broader sector diffusion stage.

2. RBC Raises Target: Earnings Improvement Is Core Logic

RBC Capital Markets raised its 12-month S&P 500 target from 7,900 to 8,150, becoming a market focus. The bank's core reasoning is straightforward: improved earnings expectations, a favorable economic environment, and a slight retreat in inflation expectations collectively elevate the valuation base of US stocks.

In the valuation framework, earnings are the fundamental variable determining long-term trends. RBC's key basis for raising the target is a significant upward revision in bottom-up consensus earnings expectations for Q1 2027. At the same time, its inflation forecast was cut from 3.3% to 3%, implying a relatively mild rate environment, supporting the valuation center. Although the bank maintains a relatively conservative discount calculation, its overall judgment has clearly turned optimistic.

Notably, RBC does not ignore short-term risks. It clearly warns that earnings expectations are already high heading into earnings season; if corporate results fail to consistently beat estimates, stocks could see significant swings. Additionally, profit-taking pressure on semiconductor and other AI concept stocks, geopolitical conflicts, midterm elections, and the possibility of another Fed rate hike could all be disruptive factors.

However, over the medium to long term, the bank believes that as long as recession risk remains low and the rate environment does not experience a severe shock, even if a correction occurs, the drawdown is likely limited to a peak-to-trough range of 5% to 10%. This means institutions have not changed their basic judgment on US stock trends due to short-term fluctuations.

3. JPMorgan: Upside Possible, but "Flash Crash Risk" Still Needs Attention

Compared to RBC, JPMorgan's view emphasizes more that "opportunity and risk coexist." The bank raised its S&P 500 target from 7,600 to 7,800, citing the continued expansion of AI capital expenditures, which has driven continuous upward revisions in consensus expectations, with average US stock earnings growth over the next two years possibly near 20%.

JPMorgan believes that such cross-sector, sustained upward earnings revisions are historically uncommon, typically occurring after an economic shock or recession ends. Therefore, the current environment for US stocks, at least on the earnings front, has substantial support. If combined with geopolitical easing and improved risk appetite, the probability of indices hitting higher levels is increasing.

But JPMorgan also clearly reminds that markets cannot rise smoothly all the way. First, companies have beaten earnings estimates for multiple consecutive quarters, raising the bar for Q2 and subsequent reports; achieving "beat upon beat" in the future will be difficult. Second, momentum trading crowding is high, especially among low-quality speculative names in second- and third-tier AI concepts; if fund flows reverse, flash crashes could occur. Third, equity supply expansion and further monetary policy tightening in the coming quarters could both compress valuation expansion space.

Based on this, JPMorgan proposes a more defensive barbell strategy: allocating to quality growth stocks on one side and pure AI sector names and low-volatility defensive assets on the other. This approach reflects institutions rebalancing "offense" and "defense," neither abandoning the AI theme nor overexposing themselves to crowded trades.

4. More Institutions Raise Forecasts: Medium-Term US Stock Logic Unchanged

Beyond RBC and JPMorgan, recently Citigroup, Oppenheimer, Goldman Sachs, and others have also raised their S&P 500 targets. Citigroup expects the index to reach 8,100 by year-end, while Goldman Sachs sees potential to 8,000 by end of 2026. Although model assumptions differ, the commonality is clear: US corporate earnings remain the core force driving market gains, and AI-related investment and productivity improvement are key variables supporting sustained earnings growth.

From this round of institutions collectively raising targets, a market consensus is emerging: US stocks are not simply driven by liquidity or sentiment but have entered a new phase of an "earnings-driven bull market." As long as the economy does not slip into recession and corporate profits can be consistently delivered, the index center still has room to move upward.

Conclusion: Trends Still Up, but Pace Will Be More Complex

Overall, US stocks are at a significant turning point worth close attention. AI remains the most important growth engine, but its trading style is shifting from early one-way pursuit to more rational performance verification; market style is no longer confined to a few tech leaders but is spreading to cyclical, value, and defensive sectors. In other words, the bull market is not over, but has entered a new phase that tests stock-picking ability and timing judgment.

For investors, the key ahead is not whether to remain bullish, but how to be bullish: both acknowledging the medium- to long-term earnings dividends from AI and watching out for short-term pullbacks from crowded trades, high valuations, and policy disturbances. What truly determines market height remains corporate earnings; what truly determines investment success is the grasp of pace and structure.