"Despite Uncertainty, U.S. Stock Market Set to Rise... S&P 8,500 Forecast"

Outlook from Active Manager Under Franklin Templeton in the U.S.

Putnam Investments, an active equities manager under Franklin Templeton, has projected that the U.S. stock market will continue its growth trajectory despite macroeconomic uncertainties. The firm analyzed that if robust corporate earnings growth combines with real productivity improvements driven by artificial intelligence (AI), the S&P 500 index could reach the 8,500 level within the next 12 to 18 months.

On January 20, Putnam released a report outlining these views. Founded in 1937, Putnam is an investment management firm under Franklin Templeton, managing assets worth $149 billion (approximately 220.252 trillion won).

The report highlighted that although the S&P 500 index fell nearly 20% from its peak last year due to tariff uncertainties, it ultimately posted double-digit returns for three consecutive years. The analysis emphasized the need to pay attention to the positive signals seen in the U.S. stock market, even amid deteriorating consumer sentiment in the second half of last year, ongoing U.S.-China tensions, and concerns about an AI bubble.

First, the report noted that as central banks around the world are moving to cut interest rates together, financial conditions are easing. The U.S. banking system is assessed to be maintaining its soundness, with high capital ratios and delinquency rates below the average. In addition, even considering the impact of tariffs, the recent inflation trend is seen as relatively subdued.

The report also focused on the potential of AI technology. It noted that even among hyperscalers (large-scale data service providers), around $500 billion worth of AI investments are currently planned. This is expected to spur an investment cycle across power generation and transmission infrastructure. The analysis suggested that as AI creates new beneficiary companies and spreads across various sectors, it is highly likely to boost productivity throughout the economy.

Putnam also cited other factors, including: ▲ signs of recovery in the commercial real estate market after the COVID-19 pandemic ▲ U.S. President Donald Trump's "One Big Beautiful Bill (OBBBA)" and regulatory easing ▲ the possibility of a peace agreement between Russia and Ukraine and expectations for postwar reconstruction projects ▲ and the potential for improved U.S.-China trade relations.

Putnam further analyzed that there is a possibility the S&P 500 index could surpass the 8,500 level within the next 12 to 18 months. Despite the fact that S&P 500 stocks, excluding the "Magnificent 7" (Apple, Microsoft, Alphabet (Google), Amazon, Tesla, Nvidia, and Meta), are trading about 15% above their 10-year historical average, strong earnings are still expected. Nevertheless, Amazon is currently at its lowest-ever valuation, and Nvidia is also trading well below its 10-year average, indicating further growth potential. The report also assessed the expanding growth opportunities for companies outside the Magnificent 7 as a positive signal.

Shep Perkins, Chief Investment Officer (CIO) of Putnam Investments, stated, "For the S&P 500 index to surpass the 8,500 level, we would need double-digit earnings growth over the next two years, index earnings per share (EPS) to exceed $350 in 2027, and a price-to-earnings ratio (PER) of 24 to 25 times. However, this is a fully realistic scenario. While short-term volatility is expected, AI will drive change and the easing financial environment will provide investors with significant long-term upside potential."