Analysts at Capital Economics said this week that they expect the S&P 500 to keep moving higher, even after years of strong gains and record highs. They argue that enthusiasm for artificial intelligence, combined with factors like Federal Reserve policy decisions and overall economic growth, will continue to shape the index’s performance.
The firm explained that while it may seem natural to expect risks to increase after a new all-time high, the data tells a different story. Historically, 12-month inflation-adjusted returns since 1964 have actually been slightly stronger following fresh record highs compared to average performance.
Although Capital Economics admitted that results can be “sensitive to time horizons,” they found no strong evidence that real returns differ much from the norm after new peaks. In their view, headlines about record levels and momentum often don’t reliably predict future market outcomes.
Instead, the team emphasized that stock market performance depends on familiar drivers, including Fed rate cuts, GDP growth, valuations, and the impact of new technologies. Based on current conditions, they see room for solid returns in the year ahead. However, with valuations already high and rate cuts priced in, they expect the S&P 500 could move sideways in the short term.
Looking further ahead, analysts compared the current environment to the dot-com era, saying that a “neutral cyclical backdrop” is being paired with a powerful secular tailwind: the excitement around AI. They continue to believe the rally in AI-related stocks has more upside, potentially boosting the S&P 500 both in absolute terms and against global peers.
Capital Economics forecasts the S&P 500 will climb to 7,250 by the end of 2026.
