- Panmure Liberum has issued a bearish S&P 500 forecast for 2027, warning that higher bond yields, interest rates, and risks surrounding the artificial intelligence investment cycle could end the current US equity bull market.
The S&P 500 could fall to 5,000 by the end of 2027, according to a Reuters report, putting the benchmark on course for a decline of more than 35% from Friday's close of 7,722.72. The British brokerage said the US equity bull market, which began in October 2022, could end sooner than investors expect as stocks confront persistent inflation, rising bond yields, higher interest rates and less certainty around the artificial intelligence boom.
Panmure Liberum analyst Joachim Klement said stronger corporate earnings and resilient economic data have continued to support equities, but argued that the upcoming third-quarter earnings season and companies' 2027 outlooks will provide an important test of whether that strength can continue.
The forecast stands well below the expectations of several other Wall Street firms, some of which expect the S&P 500 to finish 2026 at or above 8,000.
Rising Treasury Yields Create a Bigger Test for Stocks
The bond market is at the center of the bearish case. The 10-year US Treasury yield was around 5.28% on Monday, remaining close to multiyear highs as investors assessed government borrowing, energy costs and the outlook for Federal Reserve policy.
The move follows a sharp rise in Treasury yields during the third quarter. US Treasury yields surged as bonds suffered their worst quarter since 1994, creating a more difficult environment for stocks whose valuations depend heavily on future earnings.
Higher Treasury yields can increase the return available from government debt while raising the discount rate investors apply to future corporate cash flows. That can put particular pressure on high-growth companies trading at elevated valuations.
The recent Treasury bond selloff has already affected US equities. The 10-year yield previously moved above 5.1%, while the 30-year yield reached roughly 5.42% as investors weighed stronger economic activity, higher oil prices and renewed expectations for additional Federal Reserve tightening.
Monetary policy represents another risk in Panmure's outlook. Klement said further interest-rate increases by the Federal Reserve and Bank of England could accelerate the end of the current equity bull market.
Markets are still expecting the Fed to hold rates at its October meeting, while a December increase remains substantially priced in. Higher energy prices could also complicate the inflation outlook and make an easier monetary-policy path more difficult.
AI Spending Boom Faces a 2027 Reality Check
The second major risk in Panmure Liberum's forecast involves artificial intelligence. AI-related companies have helped drive the S&P 500 higher, with Nvidia Corp. (NASDAQ: NVDA) among the most important contributors to the market's recent gains. Nvidia shares reached another record high on Friday and remained slightly higher in Monday premarket trading.
The concern is not simply whether AI companies can continue generating revenue. Investors are also assessing how much money technology companies must spend to maintain the current pace of infrastructure investment.
Klement described the situation as a capital-expenditure dilemma in MarketWatch's coverage of the Panmure forecast. If hyperscalers continue increasing AI spending rapidly, investors could become concerned about the scale and sustainability of the investment. If spending slows, companies supplying AI chips and related infrastructure could face weaker growth expectations.
That creates a difficult setup for semiconductor and technology stocks, which have become increasingly important to overall index performance.
Wealthier Today's technology-stock coverage has highlighted how Nvidia, AMD and Intel have benefited from continued AI infrastructure demand, while also showing why technology valuations remain sensitive to Treasury yields.
The broader US stock market outlook has similarly centered on the interaction between AI spending, interest rates and oil prices.
The upcoming earnings season could therefore become an important test. About 70% of the S&P 500's market capitalization is expected to have reported third-quarter results by the end of October, while Goldman Sachs analysts expect median S&P 500 earnings to grow about 9% year over year in the quarter.
Panmure's 5,000 target is consequently a bearish scenario rather than an indication that a 35% decline is imminent. The brokerage also expects the STOXX 600 and FTSE 100 to decline, reflecting its broader concern about equity valuations and monetary policy.
The key question for the S&P 500 is whether earnings growth can remain strong enough to offset higher borrowing costs and elevated valuations. If Treasury yields continue rising and the AI investment cycle loses momentum, the market could face significantly greater pressure.
For now, the index remains near record highs, making the gap between Panmure's 5,000 target and more bullish forecasts particularly significant for investors assessing the S&P 500 forecast for 2027.