After three years of double-digit gains, AI megatrends, strong earnings, tax policy shifts, and monetary easing suggest SPY could rise another 17% in 2026.
Can the S&P 500 Really Rally for a Fourth Straight Year?
After three consecutive years of double-digit gains, the question isn’t whether the S&P 500 (SPY) has done well—it’s whether there’s any juice left in the tank. In 2025, SPY delivered a 17.7% total return, following 24.9% in 2024 and 26.2% in 2023.
Skeptics say four in a row sounds greedy. But history disagrees.
In the late ’90s, the S&P 500 logged five straight years of double-digit returns, peaking with +37.6% in 1995 and still pushing +21.0% in 1999.
This isn’t 1999. But 2026 does have a cocktail of catalysts that could defy gravity again. From AI-led CapEx booms to corporate tax relief and monetary policy shifts, the bulls have real ammo.
1. AI Spending Is Now a Multi-Sector Growth Engine
The most obvious—and still underestimated—tailwind is AI infrastructure investment. Big Tech’s 2025 CapEx set records:
- Microsoft: ~$35B quarterly CapEx, with plans to increase
- Meta: $70–72B CapEx in 2025, with AI spend likely to grow
- Alphabet: ~$85B in 2025, expected to hit $100B in 2026
But here’s the twist: AI investment is no longer just a tech story.
CapEx flows downstream—benefiting contractors, chipmakers, power equipment suppliers, and industrials.
Names like Caterpillar (CAT +4.46%) and Vertiv (VRT +8.39%) are already riding this wave. When AI spending becomes infrastructure spending, it turns into a broad market earnings driver, not just a multiple-expansion trade.
2. Earnings Growth Can Drive Gains Even Without Valuation Tailwinds
Even if price-to-earnings multiples flatten in 2026, earnings growth can do the heavy lifting.
- Analysts forecast ~15% S&P 500 EPS growth for 2026.
- Revenue growth is projected across nearly every sector.
- All but one of the top 10 S&P 500 components carry an “outperform” rating.
If earnings rise 10–15% and the P/E multiple holds steady, SPY could see price appreciation of a similar magnitude, even before dividends.
Translation: You don’t need multiple expansion—you just need companies to hit their numbers.
3. Policy Support Is Real—And Retroactive
The overlooked wildcard? Fiscal policy.
The One Big Beautiful Bill Act reshaped key tax provisions, notably:
- 100% bonus depreciation returned for qualified property placed in service after Jan 1, 2025
- Corporations expected to claim $16B in 2025 and $137.2B in tax liability reductions in 2026
This isn’t a theoretical benefit—it boosts after-tax free cash flow for capital-intensive companies, especially in industrials and infrastructure sectors.
When the government pays you to invest, margins expand. That’s accretive to earnings—and to share prices.
4. Monetary Policy Could Turn from Headwind to Tailwind
The Federal Reserve pivot continues to unfold, and 2026 brings added intrigue:
- Jerome Powell’s term ends in May; a new chair could tilt dovish
- President Trump is expected to announce a successor in early 2026
- Markets expect at least three rate cuts if inflation stays muted and labor softens
Investors aren’t betting on a politicized Fed—but a more growth-sensitive reaction function is plausible.
Lower rates improve credit conditions and risk sentiment—historically good for equities.
Is SPY Still a Buy in 2026?
Wall Street thinks so. SPY holds a Moderate Buy rating, with just eight Sell calls among analysts. The average price target is $800.18, implying 17.3% upside from current levels—another double-digit return year.
- The earnings math checks out
- The policy backdrop is supportive
- And AI infrastructure spending is still accelerating
Yes, there are risks—valuation, geopolitics, rate path surprises—but the base case remains bullish.
If 2023–2025 were driven by multiple expansion and AI hype, 2026 could be the year fundamentals take over—and still deliver strong returns.
TL;DR:
SPY has risen for three straight years—but analysts still forecast a 17% gain in 2026. Why? Massive AI CapEx, broad-based earnings growth, corporate tax relief, and a potential Fed pivot are aligned to support another year of strong returns.
