By Caroline Valetkevitch
NEW YORK, Aug 26 (Reuters) - The S&P 500 benchmark U.S. stock index will add to this year's already robust gains and end 2026 about 3% above current levels, reflecting optimism earnings will stay strong and U.S.-Iran tensions will ease, according to a Reuters poll.
Much stronger-than-expected second-quarter results and AI-related spending, will support valuations, strategists in the poll said.
"It's hard to describe this as anything other than an investment boom," said Sameer
Samana, head of global equities and real assets at the Wells Fargo Investment Institute. "It seems like the boom will continue into next year."
The S&P 500 will end 2026 at 7,900, 2.9% above Tuesday's close, according to the median estimate of 46 strategists, analysts and portfolio managers polled between August 12 and 25.
It ended Tuesday at 7,677.28 and has increased about 12% so far in 2026.
RECORD HIGHS REACHED IN AUGUST
Strategists' estimates have increased since a Reuters poll in May, when they expected the S&P 500 to end 2026 at 7,620.
The S&P 500 rose to record highs this month in part due to a banner second-quarter profit season, with S&P 500 companies on pace for a 33.5% year-over-year increase in earnings on an adjusted basis, the highest growth since 2021, according to LSEG I/B/E/S.
Results late Wednesday from chipmaker Nvidia, which has benefited from the push to build AI infrastructure but also has pumped billions of dollars into AI deals, mark the end of the season.
Earnings forecasts for the rest of the year have risen as well and the strength has boosted valuations. The forward price-to-earnings ratio of the S&P 500 was at 20.2 on Friday, according to LSEG, down from a P/E ratio of about 22 at the end of 2025.
At the same time, surging profits at AI-related companies continue to raise worries.
"Not only are we in an environment where analysts and strategists are forecasting fairly heady growth ... but we're in an environment where the drivers of earnings are becoming a little bit less transparent," said Savita Subramanian, equity and quant strategist at BofA Securities, which has a 7,100 year-end target on the S&P 500.
"These megacap tech companies are now taking on more and more leverage. They're still very healthy from a balance sheet perspective, but they are levering up."
Active hostilities between the U.S. and Iran have subsided, but efforts to reach a peace deal have stalled and passage through the Strait of Hormuz has remained problematic.
The disruption caused oil prices to shoot higher after the start of the U.S.-Iran conflict in late February. Subsequent declines have helped to buoy Wall Street sentiment and reduce worries about inflation.
Investors are looking to Federal Reserve Chairman Kevin Warsh's speech on Friday at the central bank's Jackson Hole symposium for any signals that the Fed may be leaning toward a more hawkish stance on inflation.
Some strategists say U.S. midterm elections, which take place in early November and include federal, state and local contests, will add to near-term uncertainty.
The impact on Congress will be key as U.S. President Donald Trump's Republican party controls both chambers of the legislative body.
"After Labor Day, people will turn their attentions to elections, and they will probably find more reason to sell equities than to buy, so you should see some type of setback," Samana said. But, he added it will likely be followed by a year-end rally that will continue into 2027.
The Dow, which on Tuesday closed at 53,577.40, will finish the year at 54,500.
(Other stories from the Reuters Q3 global stock markets poll package)
(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Stephen Culp, Sinead Carew and Chibuike Oguh in New York; additional polling by Sarupya Ganguly and Mumal Rathore; editing Barbara Lewis)
