The U.S. stock market is having another fantastic year. Despite inflationary pressure created by tariffs and elevated oil prices, corporate financial results have been exceptionally strong in recent quarters, primarily due to heavy spending on artificial intelligence infrastructure.
Strong earnings growth has supported robust returns in the stock market. The S&P 500 (^GSPC -0.17%) has advanced 12% in 2026, putting the index on pace for its fourth consecutive year of double-digit gains. And Wall Street expects that momentum to carry into 2027.
Here’s what investors should know.
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Wall Street says the S&P 500 will soar 21% over the next year
FactSet Research Systems calculates a 12-month S&P 500 target price using a bottom-up methodology. While traditional top-down forecasts start with macroeconomic indicators and filter down to index level, a bottom-up forecast aggregates the median target prices on each stock in the index to build a comprehensive, market-wide forecast.
As of Sept. 25, the S&P 500 had a 12-month target price of 9,275. That implies 21% upside from the current level of 7,670. That projection is based in part on the expectation that S&P 500 earnings will grow 32% in 2026, the fastest growth outside of a post-recession recovery in more than three decades.
At the sector level, technology companies are expected to be a major contributor to S&P 500 earnings growth due to strong demand for semiconductors. But Wall Street analysts also anticipate strong earnings growth from companies in the energy, communications services, materials, and consumer discretionary sectors.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, writes, “The bull case remains intact, supported by strong earnings, accelerating investment in artificial intelligence, and a market that is less dependent on mega-cap technology leaders.”
However, Shalett also sees several headwinds that could derail the bull market as we move toward 2027, including high bond yields, elevated oil prices, policy uncertainty, and strain among lower-income consumers.
Investors should consider buying an S&P 500 index fund
The Vanguard S&P 500 ETF (VOO -0.16%) measures the performance of the S&P 500, which itself includes 500 large U.S. companies that cover about 80% of domestic equities and more than 50% of global equities by market value. In short, the Vanguard S&P 500 ETF provides investors with exposure to many of the most influential companies in the world. The five largest holdings in the fund are listed by weight below:
- Nvidia: 8.1%
- Apple: 7%
- Microsoft: 5.7%
- Alphabet: 5.3%
- Amazon: 3.8%
Warren Buffett regularly recommended an S&P 500 index fund during his career. He argued that most retail investors lacked the time, patience, and skill set required to own individual stocks. Indeed, even financial professionals struggle to consistently beat the S&P 500. In the last decade, about 83% of large-cap funds underperformed the benchmark index.
Buffett wrote in his 2013 shareholder letter, “The goal of the non-professional should not be to pick winners — neither he nor his helpers can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”
Here’s the big picture: Even if Wall Street is wrong about the S&P 500 advancing 21% over the next year, there are plenty of reasons to own the Vanguard S&P 500 ETF. The index fund returned 316% (15.3% annually) over the last decade, and it has a very low expense ratio of 0.03%, meaning shareholders will pay just $3 per year on every $10,000 invested in the fund.
Investors would be hard-pressed to find a cheaper index fund with a better track record. That’s why I personally have a large percentage of my portfolio invested in the Vanguard S&P 500 ETF.
Trevor Jennewine has positions in Amazon, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, FactSet Research Systems, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
