The S&P 500 (SNPINDEX: ^GSPC) is closing in on another strong year in 2026, up roughly 14% year to date after closing on Oct. 7 at 7,801. The current bull market is around four years old, having begun in October 2022, but I think stocks have plenty of upside ahead. In fact, I predict the S&P 500 will hit 10,000 in 2027. That would be another 28% gain from here.
Here’s why I think the S&P 500 will hit 10,000 next year.
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A cheap market and a historically strong period ahead
While there is a lot of talk about the market being at a historically high valuation when using metrics like the CAPE ratio and Buffett indicator (the market’s total market cap divided by GDP), the S&P 500 is actually at its cheapest level in more than 30 years when using a more traditional PEG (price/earnings-to-growth) ratio.
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According to Yardeni Research, the S&P 500 currently has a PEG of around 0.7, based on five-year forward growth estimates. That’s well below the 1.3 times the index has averaged over time, and only the fifth time it’s dipped below 1 since at least 1995.
The S&P 500 would have to rise by about 43% just to reach a PEG of 1 and about 86% to return to its 1.3 average. This gives the market plenty of room to run.
Meanwhile, many of the low PEG ratios in the S&P 500 are concentrated in artificial intelligence (AI) infrastructure stocks. Stocks like Nvidia, Broadcom, Advanced Micro Devices, and Micron Technology have minuscule PEG ratios. So, if the S&P 500 is going to climb toward 10,000, it likely will be led once again by AI stocks.
That said, market breadth has been quite low, with AI stocks remaining strong while other sectors have struggled. Any catch-up from market laggards over the next year would also be a boost to the S&P 500 and help push it to the 10,000 market.
In addition to valuation and the potential for laggards to rebound, the stock market is also just about to enter its strongest historical period. The S&P 500 has historically performed best in the quarters following midterm elections, rising 95% of the time the following year (November to November). Meanwhile, this period has also produced the strongest stock returns, with the S&P 500 up an average of 14.5% in the 12 months following, according to Fidelity.
In fact, according to the Carson Group, we are right at the start of the two best quarters historically for owning stocks. The S&P 500 has risen 84% of the time since 1950, averaged a 6.6% return during the fourth quarter of a midterm election year, and climbed 95% of the time in calendar Q1 of the year following midterm elections, gaining 7.4% over these three months. Calendar Q2 in the year following midterms also isn’t too shabby, producing an average gain of 5% and increasing 74% of the time.
How to invest
When the market nears a milestone, it tends to hit it, so I think between a cheap overall market valuation and a strong historical period for stocks, the S&P 500 should hit 10,000 toward the end of next year. AI stocks will likely lead the way, but I’d also expect some improved market breadth to help.
The S&P 500 isn’t guaranteed to hit 10,000 next year, and the index’s performance will depend heavily on continued investment in AI infrastructure. The index is now heavily weighted toward megacap tech stocks, so a lot is riding on the AI trade. Still, companies appear to be getting strong returns on their investments, so I expect AI to have a long runway still ahead.
Meanwhile, the best way to invest in the S&P 500 is through an exchange-traded fund (ETF) like the Vanguard S&P 500 ETF (NYSEMKT: VOO), which is a great, low-cost way to mimic the index’s returns.
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Geoffrey Seiler has positions in Advanced Micro Devices, Broadcom, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Micron Technology, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
