Carson Group raised its year-end target for the S&P 500 to a 15% to 18% total return on the conviction that earnings growth and expanding profit margins can keep outrunning stickier inflation with a Federal Reserve that has stayed on hold.
The firm's midyear outlook report, titled "Still Riding the Wave," said the S&P 500 already returned 10.2% in the first half of the year, a gain the report attributed to strong fundamentals. Earnings growth expectations for 2026 climbed from 15.2% at the start of the year to 23.8% by the end of May, a jump the report said justified moving its S&P target up from its original 12% to 15% range.
"After a solid, low double-digit return for stocks in the first half of the year, we do not think the good times are over and remain optimistic about the rest of 2026," said Ryan Detrick, chief market strategist at Carson Group, in a statement. "The waves behind this bull market remain powerful tailwinds, with earnings and profit margins helping drive prices higher, even amid uncertainty surrounding the Middle East, inflation and the Fed."
Carson said it remained overweight equities relative to bonds, continuing a call it made at the start of the year to ride the wave of artificial intelligence investment. That view has only strengthened, the report said, even as most of the economic impact so far has come from AI-related capital spending rather than any measurable productivity boost. Big technology firms are now expected to spend $740 billion on AI-related capital expenditures in 2026, up from an earlier estimate of $515 billion, according to the report.
Behind that earnings strength was a margin story, too. Forward-looking profit margins for the S&P 500 reached 15.6% by mid-June, up from 12% at the end of 2019 and a new all-time high, the report said, adding that "one person's margin expansion is another person's inflation."
However, not every piece of the economic picture inspired confidence. Job growth stalled for much of the past year before recovering to an average of 114,000 jobs a month so far in 2026, up from a monthly decline of 7,000 between May and December of 2025, the report said.
Inflation was the bigger worry: The war in Iran added pressure to energy prices, and core PCE inflation for services excluding housing ran at 3.6% over the past year, well above its 2018 to 2019 trend, the report said.
That combination left the Fed on hold, a stance the report described as “accommodative” given the level of inflation, and the bond market took the brunt of it. The Bloomberg US Aggregate Bond Index returned only 0.4% through the end of May, leaving Carson to raise its year-end target for the 10-year Treasury yield to 4.5%, while keeping its Agg return target at 3% to 5%. The firm said it favored below-benchmark duration and continued to diversify with gold, managed futures, Treasury Inflation-Protected Securities and floating rate corporate debt.
The report drew a parallel to the Fed's slow response to inflation in the late 1970s, when then-Chair Paul Volcker raised rates above 15% to break the cycle. Carson said it did not expect anything close to that this time, but noted even a move to 5% to6% "would be quite painful."
On the plus side, the unemployment rate held at a historically low 4.3%, helped by weaker population growth amid an immigration slowdown. Put together, a recession in the next year remained unlikely, according to the report.
Sentiment, however, has yet to catch up with performance, according to the report.
An American Association of Individual Investors poll showed more bears than bulls for the first five months of 2026, even as the S&P 500 climbed toward double-digit gains, and the Michigan Consumer Sentiment survey hit an all-time low in May. The report said that gap was itself a reason for optimism, since bull markets rarely run out of steam while pessimism still dominates.
Carson also flagged risks worth watching in the second half. Midterm years have historically produced the steepest peak-to-trough pullbacks of the four-year presidential cycle, averaging 17.5%, though the report noted 2026's decline so far has been limited to 9.1%. The bull market that began in October 2022 has already gained more than 100% from its lows, and the report said bull markets that reach that mark have historically gone on for three more years and roughly 160 more percentage points of gains before ending.
The report also urged advisors to keep politics out of portfolio decisions ahead of November's midterm elections. Split control of Congress has historically produced the S&P 500's best average returns of any configuration, at 17%, compared with 8.3% under full Republican control and 4.9% under full Democratic control, the report found.
"Markets climb a wall of worry," the report said.
Facts Only
* Carson Group raised the year-end target for the S&P 500 to a 15% to 18% total return.
* The justification for this target was expectations that earnings growth and expanding profit margins would outrun stickier inflation while the Federal Reserve remained on hold.
* The S&P 500 returned 10.2% in the first half of the year.
* Earnings growth expectations for 2026 climbed from 15.2% to 23.8% by the end of May.
* Forward-looking profit margins for the S&P 500 reached 15.6% by mid-June.
* Big technology firms are expected to spend $740 billion on AI-related capital expenditures in 2026, up from $515 billion previously estimated.
* Job growth recovered to an average of 114,000 jobs a month so far in 2026.
* Core PCE inflation for services excluding housing ran at 3.6% over the past year.
* The Bloomberg US Aggregate Bond Index returned only 0.4% through the end of May.
* Carson raised its year-end target for the 10-year Treasury yield to 4.5%.
* Carson kept its Agg return target at 3% to 5%.
Executive Summary
Carson Group raised its year-end target for the S&P 500 to a 15% to 18% total return, basing this on expectations that earnings growth and expanding profit margins would outpace stickier inflation amid a Fed holding its stance. The firm's midyear outlook indicated strong fundamentals, noting the S&P 500 had returned 10.2% in the first half of the year. Earnings growth expectations for 2026 increased significantly, moving from 15.2% to 23.8% by May, which justified raising the S&P target range. Chief market strategist Ryan Detrick expressed optimism, suggesting that momentum from earnings and margins provided powerful tailwinds despite uncertainties related to the Middle East, inflation, and the Federal Reserve.
The firm maintained an overweight position in equities relative to bonds, continuing a focus on AI investment themes, noting that capital spending in 2026 for big technology firms is projected at $740 billion. Profit margins for the S&P 500 reached a new all-time high of 15.6% by mid-June, which the firm framed as reflecting margin expansion across the market. However, other economic indicators presented counterpoints: job growth stalled before recovering to 114,000 jobs per month in 2026, and core PCE inflation for services excluding housing was at 3.6% over the past year. The persistent inflation worries led the bond market to yield only 0.4% through May, prompting Carson to raise its target for the 10-year Treasury yield to 4.5%.
Full Take
The narrative presented balances optimistic growth signals from corporate earnings and profit margins against persistent macroeconomic headwinds related to inflation and economic stagnation. The core tension lies between the forward-looking fundamentals—rising earnings expectations and margin expansion—and the lagging reality of sticky inflation, constrained monetary policy, and stalled employment. This dynamic suggests that market performance is currently driven by expected future growth rather than current tangible metrics.
The focus on AI capital spending highlights a potential divergence in economic impact: high investment figures do not yet translate into broad productivity gains, suggesting momentum might be heavily concentrated within specific sectors rather than being broadly distributed across the economy. The relationship between individual margin expansion and broader inflation suggests that local, firm-specific health does not automatically resolve systemic inflationary pressures. Furthermore, the contrast between market performance and investor sentiment indicates a potential disconnect where optimism about fundamentals is not fully translating into investor psychology until tangible macroeconomic shifts occur.
The warning regarding midterm elections underscores a structural pattern: political volatility acts as an external drag on asset pricing, historically suppressing returns regardless of underlying economic strength. The suggestion that markets "climb a wall of worry" points to an ingrained psychological resistance against risk appetite, which implies that fundamental positive indicators must overcome deep-seated pessimism for sustained bullish momentum. The uncertainty over the Fed's reaction and the historical volatility in recession timing suggest that current optimistic views are built on contingent assumptions rather than certainties about future policy outcomes or cyclical shifts.
Bridge Questions: If earnings growth is accelerating but inflation remains elevated, what specific policy levers must the Federal Reserve successfully pull to align these two forces? How does the disconnect between aggregate job recovery and individual sentiment influence portfolio allocation decisions when uncertainty reigns? What structural economic shift would be necessary for current margin expansion to sustainably translate into broad-based real wealth generation rather than sectoral concentration?