It’s been prediction season on Wall Street, with all the gurus consulting their crystal balls to firm up their forecasts for where the S&P 500 index will finish 2026.
It ended last year at 6845.50, and the 17 estimates I could find range from 7100 to 8100.
That implies a gain of anywhere from four per cent to 18 per cent.
The median estimate (which five of the 17 are picking) is 7700, which suggests a 12.5 per cent gain.
That’s modest by recent standards, because the S&P 500 has enjoyed a stunning period of above average returns.
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Out of the last seven years, six of them have been up, and up big.
Apart from the one down year (which was 2022, when we saw a historically aggressive hiking cycle from central banks), returns have landed between 16.3 and 28.9 per cent.
Recency bias might be playing a part here, as strategists (who are human like the rest of us) assume what’s happened in the very recent history will continue to happen.
The average return since 1950 is a more modest 8.1 per cent (which rises to 11.3 per cent, if we include reinvested dividends).
That’s not bad at all.
Having said that, the market rarely delivers an annual return close to that long-term average.
In the 75 years since 1950 there have been just four where the price return was in the 7-9 per cent range, despite the average over that entire period being about eight.
For the other 71 years (or 95 per cent of the time) returns were outside of that range, often by quite a wide margin.
There have been 20 down years (that’s about one in four), including nine double-digit declines and three 20 per cent plus falls (1974, 2002 and 2008).
On the other hand, the market has gone up most of the time, with 55 positive years out of 75, a 73 per cent hit rate.
There were also 16 years where the US shares rose more than 20 per cent, and another five where they were up 30 per cent.
The lesson is very simple.
The long-term return from shares is great, but year-to-year they can be all over the place.
I sympathise with many of these strategists, who probably don’t enjoy being asked to come up with end of year targets.
They’re fantastic for the marketing department, which is assured of widespread media coverage and interest.
But we shouldn’t expect anyone to nail these calls, not consistently at least.
That uncertainty is reflected in the almost 15 per cent between the highest and lowest forecast.
When some of the smartest brains in the business with ample resources arrive at such different conclusions, that points to the range of potential outcomes.
One notable point is that nobody is cautious enough to be picking a down year.
That was the case last year too (and it was correct), but in the previous three years there was at least one strategist brave (or contrarian) enough to predict the market would fall.
The forecasts are fun, just don’t put too much weight on them.
It’s also important to note that as new information becomes available, these will be revised and tweaked as 2026 progresses.
Lori Calvasina from RBC Capital Markets said it well last year, describing these “as a navigational tool, but more of a compass than a GPS”.
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Mark Lister
Investment Director
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.