The S&P 500 has delivered a strong performance so far in 2026 despite the Iran war. Robust technology and energy earnings, the ongoing artificial intelligence (AI) boom, and still-resilient global and U.S. economic growth have supported the rally. The index has gained 11.9% year to date (as of Sept. 8, 2026).
However, the index is off about 1% over the past month (as of Sept. 8, 2026). Investors can bet on this dip as several factors look lucrative to support a year-end rally.
Stronger Earnings Expectations
S&P 500 earnings growth has been strong over the past two years, but the current momentum stands out. Growth is accelerating and becoming increasingly broad-based across sectors, creating a supportive backdrop for stocks.
For Q3 2026, S&P 500 earnings are expected to rise 23.0% year over year, while revenues are projected to grow 11.1%. Earnings are expected to increase in 14 of 16 sectors, with six delivering double-digit growth, per the Earnings Trends issued on Sept. 2, 2026.
For full-year 2026, S&P 500 earnings are projected to climb 27.6%, though growth would moderate to 14.8%, excluding Tech. Earnings are expected to rise in 15 of 16 sectors, with nine posting double-digit growth. Oil/Energy leads with 78.9% growth, followed by Tech at 52.0%, Aerospace at 50.0% and Basic Materials at 42.7%.
AI Boom Continues to Drive Earnings Growth
Artificial intelligence (AI) infrastructure spending is likely to contribute to total S&P 500 earnings growth in the medium term.Goldman Sachs Research raised its year-end 2026 target for the S&P 500 to 8000 in May 2026.
The brokerage estimated in May that major hyperscale technology companies will spend nearly $754 billion in capital expenditures in 2026, up 83% from 2025 levels, with spending projected to rise further to $905 billion in 2027.
Semiconductor firms remain the biggest direct beneficiaries of AI spending, while technology hardware, industrial and utility companies are also seeing strong earnings support from the AI buildout.
Valuations Remain Slightly-Elevated
The S&P 500 currently trades at roughly 20.08 times forward earnings, per MacroMicro.me. The valuations fell to a low of 11.75X in August 2011 and hit a high 32.47X in April 2008.
It shows that the multiple looks relatively stable. However, that benefit could be offset by slower economic growth, geopolitical uncertainty, rising inflation, high yields and investor skepticism surrounding the durability of AI-driven profits.
Q4: A Mix of Boon & Bane
While seasonal weakness ahead of U.S. midterm elections could be a headwind in Q4, holiday season shopping could add to the S&P 500 rally. Investors should also note that the late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. A series of sales-boosting events — Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quarter.
S&P 500 ETFs in Focus
Against this mixed backdrop, investors may track S&P 500 exchange-traded funds (ETFs) such as Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV, SPDR S&P 500 ETF Trust SPY, State Street SPDR Portfolio S&P 500 ETF SPYM and Invesco S&P 500 Momentum ETF SPMO. SPYM charges 2 bps in fees annually while VOO and IVV charge 3 bps in fees each. SPY is a pricey choice with 9 bps in fees.
Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF SPYG and the value part of the index with SPDR Portfolio S&P 500 Value ETF SPYV. SPDR Portfolio S&P 500 High Dividend ETF Fund SPYD is a good bet for the dividend plays of the index.
Investors with a strong stomach for risk can bet on leveraged S&P 500 ETFslike Direxion Daily S&P 500 Bull 3X Shares SPXL, ProShares Ultra S&P500 SSO and ProShares UltraPro S&P500 UPRO, if the index is on an uptrend. However, if the S&P 500 falls by any chance, the inverse ETF ProShares Short S&P500 ETF SH will rise.
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This article originally published on Zacks Investment Research (zacks.com).
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