Where LPL financial sees the S&P 500 at the end of 2026

n its 2026 outlook, LPL Financial (NASDAQ:LPLA) sees modest gains for the S&P 500 next year.

The leading investment advisor and broker-dealer anticipates the S&P 500 to end the year somewhere between 7,300 and 7,400, which would represent a roughly 7% to 8% gain in 2026.

“The bull market appears poised to extend its run in 2026, fueled by ongoing enthusiasm around artificial intelligence and further easing of monetary policy from the Fed,” the 2026 outlook stated. “However, with valuations running high and midterm election years often bringing more volatility, gains may be more tempered in 2026.”

LPL Chief Equity Strategist Jeffrey Buchbinder cited several forces that should extend the bull market into its fourth year, most notably, the continued investment in AI, Fed easing, and favorable federal fiscal policy.

Perhaps the most powerful investment cycle affecting stocks is the wave of AI capital investment. Consensus estimates for 2025 capital expenditures from the five hyperscalers — Alphabet, Amazon, Meta, Microsoft, and Oracle – in 2025 are expected to come in at around $400 billion,” Buchbinder wrote. “In 2026, the number is now expected to approach $520 billion, a roughly 30% increase over this year’s estimate and an estimated 1.6% of the U.S. economy, measured by nominal GDP.”

This AI surge in investment will help drive both the economy and corporate profits.

“Nothing is bigger than AI right now and that is very unlikely to change anytime soon,” wrote Buchbinder.

Double-digit earnings growth

Wall Street analysts anticipate double-digit earnings growth for S&P 500 companies next year, fueled by AI, with the Magnificent 7 stocks continuing to lead the way.

“While the wide gap between the Magnificent Seven’s earnings growth and the rest of the market will likely persist well into 2026, supporting large cap growth stocks, expect this gap to narrow as the year progresses,” the chief equity strategist wrote. “This is something to watch closely when the calendar turns, as it could spark a market rotation into value stocks.”

Buchbinder added that the Fed’s rate cutting cyle should also provide a tailwind for stocks next year.

“If the economy holds up, rate-cutting cycles tend to be followed by stock market gains. Stocks prefer rate cuts that are luxuries rather than emergencies — and we would categorize upcoming cuts as the former. The Fed is normalizing rates, not staving off an impending recession,” he wrote.

In past rate-cutting cycles, the S&P 500 was 13% higher on average 12 months later. Further, when the U.S. economy was not in recession around a rate cut, the average 12-month return for the S&P 500 was 18%.

Key risks for stocks are potential AI disappointments, upward pressure on long-term interest rates, global trade tensions, and geopolitical instability.

What about valuations?

Buchbinder said the prevailing trends should provide favorable conditions for stocks to keep their already high valuations in check.

“But even if corporate profits grow double digits this year and next, it’s difficult to make a case for a higher price-to-earnings ratio (P/E) than the current 22 times. A growing economy will drive similar mid-single-digit revenue growth as in 2025, while margins are expected to inch higher as tariffs are fully absorbed and benefits from AI increasingly permeate, enabling the potential for double-digit earnings growth. That means earnings growth rather than P/E multiple expansion will probably have to drive stock prices higher,” Buchbinder wrote.

In terms of sectors, LPL is overweight in communication services and underweight on real estate. They are neutral on the rest, but healthcare is on their radar for a potential upgrade in early 2026.

The firm advises investors to maintain their current allocations, while looking for “pullbacks to selectively increase equity exposures.”

While the S&P 500 at 7,300 to 7,400 is the baseline forecast, it could hit 7,800 by year-end 2026 if there are more significant productivity gains from AI investment. They give that a 25% chance. On the downside, recession fears could lead to a 5% to 7% drop, which would put the benchmark in 6,200 to 6,300 range. They give that scenario a 15% probability.