The S&P 500 Is Up 9% in 2026. Wall Street Says the Stock Market Will Do This Next.

The S&P 500 (^GSPC 1.44%) had added 9% year to date despite a plethora of headwinds, including economic uncertainty surrounding President Trump’s trade policies and elevated oil prices tied to the Iran conflict. High inflation has also taken interest rate cuts off the table, at least in the near term.

For context, the S&P 500 had added less than 2% at this point in 2025. So what’s driving the stock market higher this year? And will the market’s momentum carry into the second half of 2026?

Here’s what investors need to know.

The stock market’s gains have been driven by exceptional financial results

The S&P 500 entered the year with a forward price-to-earnings ratio of 22, one of its most expensive valuations on record. In fact, the index has only exceeded that level during two other periods in the last four decades: the dot-com bubble and COVID-19 pandemic. Both incidents led to bear markets.

The situation got more complicated when the U.S. attacked Iran in late February, sending oil prices to their highest level since Russia invaded Ukraine in 2022. In turn, high energy prices drove inflation to a multi-year high, quashing any hope that the Federal Reserve would cut interest rates in the near future.

Yet, the S&P 500 has still advanced 9% this year, and the driving force behind those gains has been strong financial results. In the first quarter, S&P 500 companies reported revenue growth of 12%, the highest level since 2022. And they reported earnings growth of 29%, the highest level since 2021, according to FactSet Research.

Driving deeper, the technology and communication services sectors led the S&P 500 with earnings growth of 55% and 49%, respectively. And the top five contributors to the index’s earnings growth were companies at the heart of the artificial intelligence (AI) infrastructure build-out: Alphabet, Amazon, Meta Platforms, Micron Technology, and Nvidia.

Paul Quinsee at JPMorgan Chase writes:

The impact of AI is spreading, and separately the energy sector is delivering increased profits. But if we exclude these two market drivers, we project U.S. earnings will grow at a moderate 8% this year. This underscores the critical role the massive AI investment boom now plays in the outlook for equity returns.

Wall Street expects the S&P 500 to climb a little higher in the second half of 2026

Wall Street analysts expect more strong financial results from S&P 500 companies in the remaining quarters of 2026. For the full year, the consensus estimate says revenue will increase 11% (the fastest growth since 2022) and earnings will increase 23% (the fastest growth since 2021).

Accordingly, analysts expect more upside in the stock market. The chart below shows where different Wall Street investment banks and research companies expect the S&P 500 to finish the year. It also shows the implied upside or downside versus the index’s current level of 7,473.

Data source: Reuters, Yardeni Research.

As shown, the S&P 500 has a median year-end target of 7,850 among 19 Wall Street investment banks and research companies. That represents a slight upward revision from 7,600 earlier this year, and it implies 5% upside from the index’s current level of 7,473. That would bring the S&P 500’s full-year return to 15% .

However, investors should bear in mind that Wall Street has frequently missed the mark when trying to predict the stock market’s future movements. Over the last four years, the S&P 500’s median year-end target (based on dozens of analysts surveyed by Reuters) was incorrect by an average of 16 percentage points.

Also, investors should understand the risks to the downside. Relations between the U.S. and Iran are strained despite a recent de-escalation. Inflation remains well above the Federal Reserve’s 2% target. And President Trump plans to impose new tariffs this summer following the expiration of the 10% global tariff in late July.

Here’s the big picture: Investors should feel comfortable buying stocks today, particularly AI enablers. But downside risks warrant caution. Now is not the time to chase expensive IPOs like SpaceX. Instead, look for stocks that trade at reasonable prices, whose earnings are likely to be much higher in five years.