The S&P 500 Index has had a strong performance this year as it jumped to a record high several times. It has soared by 41% from its lowest level this year, and Wall Street analysts believe that the index and its ETFs, like SPY, VOO, and IVV have more upside in the coming years.
S&P 500 Index benefited from key tailwinds
The S&P 500 Index soared this year as investors cheered several important tailwinds.
The most important one was corporate earnings, which continued thriving this year.
Data compiled by FactSet shows that constituents of the S&P 500 Index had strong earnings in the last quarter. The average earnings growth was worth 13%, which was higher than what analysts were expecting. It was the fourth consecutive quarter of earnings growth.
The S&P 500 Index also surged as the Federal Reserve started cutting interest rates. It has already slashed rates by 50 basis points, and analysts believe that this trend will continue in the final meeting of the year.
Additionally, the index and its ETFs recovered after Donald Trump implemented tariffs during the so-called Liberation Day. While the tariffs were stiff, the president and his team negotiated and brought most of them lower, with most of them coming in at 15%.
Companies have demonstrated resilience during this time, with many of them reporting strong earnings. For example, the GM stock price soared to a record high this week, even though it is one of the most affected.
Tariffs have also had a positive impact on the US economy, with estimates showing that they will help to reduce the public debt by over $4 trillion in the next decade.
Most importantly, the S&P 500 Index benefited from the ongoing AI tailwinds as top companies continued spending heavily. Indeed, a closer look at the top performers shows that most of them are companies in the AI industry, like Sandisk, Western Digital, Seagate, Micron, Palantir, and Lam Research.
Mergers and acquisitions have also returned, a trend that may continue in the coming year. Deals worth over $1 trillion have been announced recently, with Netflix being in talks with Warner Bros. Discovery.
Some of the other large deals were the $48 billion buyout of Kenvue by Kimberly-Clark, the EA Sports buyout by a group of investors, and Union Pacific’s acquisition by Union Pacific.
Wall Street analysts are upbeat on US stocks
Experts believe that the stock market has more gains to go in 2026, with most of them anticipating a double-digit growth rate.
If this happens, it means that it will be the seventh year of double-digit growth rates.
The average estimate among analysts is that the S&P 500 Index will jump from the current $6,857 to $7,500 in 2026.
This growth will be because of the upcoming interest rates by the Federal Reserve, which are expected to come down significantly next year. Trump has hinted that Kevin Hassett will be the next chairman, a notable thing since the two have similar views.
Earnings growth will also be resilient now that companies have adjusted to the new normal of Donald Trump’s tariffs. Also, analysts expect that the AI boom has more room to go.
Deutsche Bank analysts have an S&P 500 target of $8,000, while Morgan Stanley believes that the index will soar to $7,800.
UBS analysts have a target of $7,700, while JPMorgan, BNP Paribas, and Barclays see it rising above $7,500. In a recent statement, Tom Lee, the popular founder of FundStrat noted that the index has more upside.Still, there are potential risks, including the fact that the AI bubble may pop in 2026 and that the S&P 500 Index is not cheap.
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