Key Points
You could get whiplash watching the equity markets this year. The benchmark S&P 500 index has fluctuated widely, getting off to a decent start, dropping dramatically following the onset of the Iran war, then recovering since the end of March.
After all the ups and downs, the S&P 500 has gained about 8.5% this year at recent prices. The question investors want answered is what will happen next.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
Of course, no one knows the answer, but investors can analyze certain fundamental factors and earnings multiples to forecast where the S&P 500 will finish the year.
Image source: Getty Images.
Earnings growth
Ultimately, while markets go up and down in the short run for a variety of reasons, earnings drive stock prices over longer periods. On that front, top-line and bottom-line growth have been very strong.
Earnings for S&P 500 companies have increased nearly 28% year over year based on first-quarter results, according to FactSet. If that holds after the rest of the companies report — fewer than 10% are left at this point — that would be the highest level of growth since the fourth quarter of 2021. This didn’t come merely from reducing expenses, as revenue has grown by more than 11%.
Can companies keep up this momentum? Analysts certainly have high expectations. The consensus estimate calls for a more than 10% revenue increase this calendar year, and a 21.5% gain in earnings.
Examining the valuation
Investors also expect elevated earnings growth to continue, based on the valuations. Based on the consensus estimate of the next 12 months’ earnings, the index’s price-to-earnings (P/E) stands at over 21, higher than the 10-year average of about 19.
Based on recent levels around 7,410, the S&P 500 trades around a trailing P/E multiple of 30. Meanwhile, the 10-year average stands at about 25.
Right now, the component companies have posted impressive earnings growth. But there’s a lot of uncertainty given the ongoing Iran war and uncertain tariff impositions, plus their effects on already weary consumers. If growth disappoints, earnings come in at $310 instead of $334, and the trailing P/E multiple contracts to 25, the S&P 500 index will finish 2026 at 7,750. That’s 4.5% above recent levels.
Breaking out the S&P 500
It’s important to understand the S&P 500’s composition. The index is weighted by market capitalization, meaning the biggest companies have the greatest influence. Hence, companies like Nvidia (NASDAQ: NVDA), with a roughly $5.5 trillion market cap; Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), around $4.9 trillion; and Apple (NASDAQ: AAPL), at $4.4 trillion, have an outsized influence on the index’s return.
The information technology sector has a 35% weight. The weightings drop off after that, with financials’ 12%, communication services’ 11%, and consumer discretionary’s 10% rounding out the top four.
Energy (3.5%), utilities (2.3%), materials (1.9%), and real estate (1.9%) have the lowest weightings.
Investing in the market
Precisely because it’s so hard to guess how much stocks will go up or down in any given year, long-term investors are best served widening their time horizon. Over the past 30 years, through a handful of bear markets and sudden pullbacks, the S&P 500 has averaged more than 8% annualized growth, or better than 10% including dividend reinvestment.
Investors who are committed to the long term have a range of mutual funds and exchange-traded funds (ETFs) from which to choose. The iShares Core S&P 500 ETF (NYSEMKT: IVV), Vanguard S&P 500 ETF (NYSEMKT: VOO), and SPDR S&P 500 ETF Trust (NYSEMKT: SPY) are three popular low-cost options that have garnered a lot of assets.
It’s important to compare expense ratios, since they affect your returns. The lower the ratio, the higher your return. Looking at the three ETFs, the iShares Core S&P 500 ETF and the Vanguard S&P 500 ETF have identical expense ratios of 0.03%. The SPDR S&P 500 ETF Trust has the highest expense ratio, at 0.09%.
Since all three track the index, I’d go with either the iShares Core S&P 500 ETF or the Vanguard S&P 500 ETF, since they have lower fees than the SPDR S&P 500 ETF. It may not seem like a significant difference, but over time, it will affect your investment total.
For patient equity investors, investing in an S&P 500 ETF has been a very successful strategy. Over the years, most active U.S. equity mutual funds and ETFs have failed to beat the S&P 500.
Should you buy stock in iShares Core S&P 500 ETF right now?
Before you buy stock in iShares Core S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and iShares Core S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $469,293!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,381,332!*
Now, it’s worth noting Stock Advisor’s total average return is 993% — a market-crushing outperformance compared to 207% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of May 19, 2026.
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
