Wall Street's aggregated price targets point to 18% upside for the S&P 500 over the next 12 months, according to FactSet's "bottom-up" estimate. But that call rests on aggressive earnings assumptions and a bullish bias among analysts.
Wall Street analysts think the S&P 500 has 18% upside left over the next 12 months, and the reasoning behind that number deserves a closer look before investors bank on it. FactSet built a "bottom-up" price target for the index by aggregating and averaging analysts' 12-month targets for every S&P 500 company they cover. Based on data from the end of June, that target came to 8918.
Where the 18% target comes from
The index sits in the fourth year of a bull run driven by heavy spending on artificial intelligence, which has lifted earnings and share prices at some of the world's biggest companies. Another 18% gain over the next year would push the bull market's total return past 150% and extend its length to about 4.75 years. That is roughly the average length of an S&P 500 bull market since 1942.
Why the target may be too optimistic
Analysts carry a bullish bias, and right now they are more bullish on S&P 500 companies than at any point in data going back to 2010. Nearly 60% of all ratings recommend buying — notable because only three years since 1995 have seen more than 60% of S&P 500 stocks beat the index.
The earnings assumptions look equally stretched. Analysts model aggregate earnings-per-share growth of 25.3% over the next year, well above the market's historic average. They also see long-term earnings growth averaging 25.4% over the next five years, the highest rate projected in data going back to 1985.
The concentration risk
Those growth expectations lean heavily on continued AI spending, with a handful of AI-centric companies driving most of the index's results while broader market performance stays elusive. If AI spending slows or hyperscalers miss earnings expectations, the source notes it could weigh on sentiment and pull stock prices lower. Reaching another 18% could be pushing the limits of this bull market without a fresh catalyst for the broader market.
Source: The Motley Fool
Trading involves risk.
Risk Disclaimer
