Reviewed by Gotrade Internal Analyst
Jakarta, Gotrade News - After scoring double-digit gains for three years straight, the US stock market is facing a more challenging set of expectations for 2026. The S&P 500 has skyrocketed more than 90 percent since the current bull market kicked off in October 2022.
Although the uptrend is predicted to continue, investors now need to be on high alert for potential volatility due to valuations that are already looking pretty pricey.
Key Takeaways
- The S&P 500 price target for year-end 2026 is projected to hit 7,269, or an upside of about 6 percent.
- Capital expenditure for AI infrastructure by tech giants is expected to smash through the $500 billion mark.
- Earnings growth is predicted to spread beyond the tech sector as economic recovery becomes more broad-based.
Read also: Neuralink Goes Mass Production, Surgery Now Fully Automated
According to LPL Financial analysis, the average S&P 500 price target at the end of 2026 sits at 7,269. This figure implies a potential upside of around 6 percent from where we expect to land at the end of 2025.
In their annual outlook, Vanguard noted that solid returns are likely to continue, driven by corporate earnings growth. However, they also dropped a warning: risks are ramping up, especially in the tech sector where valuations are already sky-high.
The debate on whether Artificial Intelligence (AI) has formed an asset bubble is currently a hot topic among market strategists.
Bank of America pointed out that the performance of tech stocks that went public this year mirrors the Dotcom Bubble era of the 1990s. The "buy the dip" indicator also shows a high level of FOMO among retail investors.
That said, the fundamentals of today’s tech companies are considered far more robust compared to the internet bubble era of the past.
Hyperscaler giants like Microsoft Corporation, Alphabet Inc., and Amazon.com, Inc. are predicted to splash out a combined capital expenditure of over $500 billion. This massive figure—which also involves Meta Platforms, Inc. and Oracle Corporation—is mostly allocated for AI infrastructure.
Peter Berezin from BCA Research warns that massive incremental revenue is needed to justify that level of Capex. If the revenue doesn't catch up, those spending numbers likely won't be sustainable in the long run.
Opportunities Beyond Tech
The silver lining is that corporate profit growth is predicted to broaden out, rather than relying on just a handful of big tech players.
FactSet Research data shows an estimated S&P 500 earnings growth of 15 percent next year. This is higher than the 10-year growth average, which hovers around just 8.6 percent.
The growth gap between Big Tech and other sectors is expected to narrow as the year progresses.
This could be a signal for investors to start looking at opportunities in other sectors with more reasonable valuations. High expectations priced into the market can be a double-edged sword for darling stocks like NVIDIA Corporation and Broadcom Inc..
On the macro side, the combination of the new OBBBA tax bill and The Fed's rate cuts is expected to provide a cushion for the US economy.
However, the consistent rise in unemployment rates over the last few months is a major risk to keep on your radar. If The Fed manages to lower rates without triggering a recession, history suggests the stock market usually delivers positive returns.
Read also: USD Predicted to Stay Weak in 2026: Impact on Gold & Crypto
Reference:
- Investopedia, Wall Street Expects a Solid 2026 for Stocks. But the 'Risks Are Growing'. Diakses pada 2 Januari 2026
- Featured Image: Shutterstock
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
