Market Outlook: S&P 500 outlook strengthened by AI and rate-cut bets

Analysts are firming up expectations for the S&P 500 heading into year-end, with some calling for further gains despite recent volatility. One strategist argues that lower corporate tax rates, the AI boom and expected Fed rate cuts support higher valuations.

BNN Bloomberg spoke with Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Advisors, who explained why he expects the index to reach 7,000 and why he sees support at current levels despite pockets of overvaluation elsewhere.

Key Takeaways

• Hatfield maintains a 7,000 target for the S&P 500, supported by AI momentum, low corporate tax rates and expected Fed rate cuts.
• He sees the recent market pullback as typical and believes strong support sits near the 6,500 level.
• Hatfield says AI stocks are not in a bubble, though he warns that some areas — including crypto treasury firms and certain private valuations — are significantly overvalued.
• He expects competition between OpenAI and Google’s Gemini to have major implications for big tech performance.
• Hatfield remains bullish on Treasuries and forecasts the 10-year yield falling to 3.75 per cent as inflation cools and the Fed cuts rates.

Read the full transcript below:

ANDREW: Analysts are weighing in with price targets for the S&P 500 for year-end. Our guest sees that benchmark hitting 7,000. We’re joined by Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Advisors. Jay, as always, great to see you. So we’re almost at 7,000 right now. You reckon that would put the market at a multiple of about 23 times — not low, but you say there are reasons to justify it.

JAY: Good morning, Andrew. It’s great to be back. Well, what a lot of people forget is that they use historical P/E multiples, but we had this gigantic cut in the corporate tax rate in 2017, which in our model raised the theoretical sustainable P/E from 18 to 22. So 23 is only a little bit above that level. We think that’s justified because the Fed, even though there’s a lot of disagreement, is clearly going to cut — at least when we get a new chair — probably cut in December. That’s super bullish.

The AI boom is bullish not just for tech companies, but for some of the real economy — power and real estate — so that should provide extra growth. We think a 23 multiple is justified. We also have a 7,900 target for next year. There’s 13 per cent earnings growth expected, a lot of that in tech. Same multiple — we’re not forecasting a big multiple expansion because it is pretty fully valued.

Targets should be used both ways. It was a pretty good place to fade the market when we got right around that 6,900 level that you mentioned.

ANDREW: So that’s interesting. When the market hits a target, you think people should consider whether to keep owning it?

JAY: I meant 6,900. Yes, of course. And you’ll notice when we recommend stocks, we always have targets. You can get really burned, as a lot of investors did in the U.S. during this downturn, because they were buying stocks trading at unreasonable multiples of growth rates — even up to seven times PEG ratios. And of course, if you invest in things without cash flow, you can get really burned. Targets matter and they’re a great way to avoid really big losses, which is the key to long-term success.

ANDREW: You say AI is not a bubble, but you are seeing areas of overvaluation, including some crypto treasury companies that hold bitcoin, for example.

JAY: What’s very strange is that there was a need for crypto treasury companies before you had ETFs, because we had a big regulatory roadblock at the SEC to get crypto — particularly bitcoin — ETFs. So they were filling that void. But once you get them, why do you need it? Why do you need a levered, more risky opportunity to buy bitcoin that often trades at a big premium, but then when bitcoin is down, you lose all the premium so it goes down way more?

So it’s kind of an anachronistic vehicle that should go away. It might get excluded from the big indexes and that might precipitate less of it as well.

ANDREW: What about this battle between Google and its Gemini AI model and OpenAI? Is that an important theme for investors?

JAY: It absolutely is. It’s driving the trading in these stocks — in the big tech stocks — almost every day. I would point out, not that we’re predicting some horrible outcome for OpenAI, but it is a company losing a tremendous amount of money. Its valuations in the private market are 25 times sales versus seven times sales for big tech companies and about three times sales for the S&P.

So that’s a pretty fully valued company with very stiff competition from Gemini, and it’s in the retail market, which is much more competitive than the corporate and industrial market. That’s why you’ve seen weakness in Oracle and Microsoft and huge strength in Google and Broadcom — because Broadcom supplies chips to Google. It’s creating a big movement as it appears, at least for now, that Gemini is gaining, if not has an advantage over OpenAI.

ANDREW: Can we switch to inflation? You have argued in the past that inflation in the United States is underestimated by the official figures. Update us on that.

JAY: Absolutely. It’s all about shelter. The rest of the world uses market rates to determine shelter costs. In the U.S., first we delay it for six months, which is gross incompetence or terrible methodology. We literally don’t update it — only update it every six months — and then we use arcane measurements of owner’s equivalent rent.

It’s really meant to slow down inflation because we had really bad housing inflation in the 1970s. But what it does now is make the Fed — because they slavishly follow it — about two years behind. We adjust it to do it like you would in Canada or Europe and just use market rents. Our CPI is 1.3 per cent and our PCE core is two. So they’re just using the wrong data.

We need a reform of the Fed. Hopefully a new Fed chair will come in and produce a new framework so that we don’t have this terrible policy that’s behind the rest of the world and holding back economic growth.

ANDREW: And you’re no fan of Jay Powell. Tell us why.

JAY: Well, just for that reason. But there’s another element, which is that a lot of investors don’t recognize this because everybody was trained in Keynesianism — which I would argue is more a political theology. Inflation comes from the monetary side — it’s excessive growth in the money supply.

During the pandemic, it grew 60 per cent. Nominal GDP grew 38 per cent, and of course inflation was 22 per cent. So Milton Friedman was proved 100 per cent correct. But this Fed chair doesn’t believe it matters at all, which is malpractice and led to the “transitory” theory of inflation, which was 100 per cent wrong. So one of our worst Fed chairs since the Second World War.

ANDREW: Are you buying U.S. government bonds these days? If you had a holding period of five years, would you buy 10-year Treasuries?

JAY: We would. We don’t trade a lot of Treasuries. We’re implicitly buying Treasuries because our largest fund, PFFA, is a preferred stock fund — it’s fixed income — so half the return comes from the price of Treasuries.

The way to trade U.S. Treasuries, if not most countries, is they trade 100 over the terminal Fed funds rate. Where the market thinks the Fed funds rate is going — it’s traded that nearly 100 per cent accurately.

We are bullish that the Fed will cut rates because inflation, even measured inflation, is going to come down as those indices finally track our index. We think we’ll get a pretty big rally in the 10-year, but not huge — probably down to the 3.75 level.

Our estimate of the terminal Fed funds rate is 2.75. So: some upside for investment-grade bonds and Treasuries; more upside for riskier fixed income like high-yield bonds and preferred stock.

ANDREW: And just finally, U.S. debt. Is there ever going to be progress on the massive overspending and accumulated debt?

JAY: I would say no. The one exception you referenced is that, at least for now, the president in the U.S. can impose tariffs, which is unpopular north of the border but also unpopular with consumers and many companies. But the administration has done that.

That’s $400 billion of revenue — almost 1 per cent of GDP — and it’s going to reduce our deficit to a sustainable level at 4.5 per cent. We’re growing nominal GDP at five. So our projections show a gradual decline in debt-to-GDP.

But for those tariffs, there’s close to zero per cent chance of fiscal responsibility because we don’t have a balanced budget framework at the federal level. Politicians want to get re-elected — spending money and cutting taxes is popular. Raising taxes is very unpopular. You never get fiscal discipline unless it’s imposed by the administration, which really is only tariffs.

ANDREW: You’re someone who likes to go against the grain where appropriate. For decades we’ve been told multilateral free trade is great for everyone. Is there nuance? Should some protectionism be imposed?

JAY: I would distinguish between a trade war — which, to be fair, the U.S. has at times pursued with Canada and definitely with China — and modest tariffs.

Tariffs in the 10 to 20 per cent range are more like a sales tax and probably not enough to really drive comparative advantage. They can be arbitraged away. We’re in favour of modest taxes on other things as well — like pollution — instead of just taxing corporate profits and wages, which discourage work and investment.

But we’re not in favour of the huge taxes that have been imposed — ones that really close down economic activity on some raw materials like steel and lumber.

ANDREW: We better go, Jay. Thank you very much.

JAY: Thanks, Andrew.

ANDREW: Jay Hatfield, founder, CEO and portfolio manager at Infrastructure Capital Advisors.

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This BNN Bloomberg summary and transcript of the Nov. 26, 2025 interview with Jay Hatfield are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.