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The bulls have been running for 3 years now.

For the first four months of 2025, it didn’t look like the bull market that began in late 2022 would survive. Some analysts say it didn’t and that the rally that began in May was the start of a new bull market.

But most Wall Street analysts and strategists say that 2025 was a continuation of the bull market that began in late 2022, making it more than three years old – and counting.

As of the close of the markets on December 24, the S&P 500 was up about 18% year-to-date reaching an all-time high of roughly 6,932. This follows returns of 24% in 2023 and 23% in 2024.

The Nasdaq Composite rose about 22.3% in 2025 to about 23,613, which is close to an all-time high. This follows gains of 43% ion 2023 and 28% in 2024.

The Dow Jones Industrial Average has gained 14.5% in 2025 and hit an all-time high on December 24, closing at 48,731. The Dow returned 13.7% and 12.9% the previous two years, respectively.

While many tech and AI stocks reset in the first four months of the year, hit with steep losses, many of them recovered, including Nvidia (Nasdaq: NVDA), which is up 40% year-to-date. Still, the market is overvalued, with the 10-year inflation-adjusted Shiller P/E ratio near an all-time high at 40.59, while the 12-month trailing S&P 500 P/E ratio is 31 – the highest since 2020.

The P/E ratio of the tech-heavy Nasdaq 100 is around 34, which is down from 38 at the start of 2025 and lower than 38 in 2021 when the tech bubble burst, but it is still historically high. The big question among strategists is if AI will continue to fuel stock market gains in 2026, or if the valuation bubble will burst?
 

S&P 500 at 8,100?

By now, most of the major Wall Street firms have come out with their initial projections for 2026, and most predict the S&P 500 to keep moving higher.

On the high side, Oppenheimer expects the S&P 500 to hit 8,100 at the end of 2026, which would be about a 17% gain over the current price.

“Our positive outlook for the S&P 500 is based on a number of factors that include persistent resilience evidenced in US economic data, S&P 500 corporate results throughout most of this year beating expectations. This, in our view, augurs for further improvement in corporate results in 2026,” Oppenheimer strategists wrote.

Morgan Stanley is targeting 7,800 for the S&P 500 in 2026, which would suggest a 12.5% return next year.

Morgan Stanley strategists says corporate earnings and cash flow should grow from a combination of market-friendly policies, interest-rate cuts by the Federal Reserve, a reduction in corporate tax bills, positive operating leverage, the re-emergence of pricing power, and AI-driven efficiency gains.
 

Or 7,100?

JP Morgan is right in the middle with a 7,500 prediction for the S&P 500, which would represent a roughly 8% gain.

“Valuations are undoubtedly rich, but there are some compelling justifications. First and foremost, profit growth has been impressive, tracking for four consecutive quarters of double-digit earnings growth. Earnings also comprise the largest contribution to total returns in the United States compared to its global counterparts … This resilience in valuations and profits comes with policy rates above 4% for the last three years, a softer consumer, less fiscal stimulus and few cyclical tailwinds. In addition, structural factors, like shifting index composition from value to growth, may also warrant higher valuations,” JP Morgan strategists wrote.

At the less bullish end of the spectrum is Bank of America, which projects the S&P 500 to be at 7,100 at the end of next year – a 2.6% gain over the current level.

While anticipating 14% EPS growth in 2026, Savita Subramanian, head of US Equity Strategy, expects muted S&P 500 gains with a year-end target of 7100.

“We are watching for signs that suggest we could be shifting from a consumption-driven bull market to a capex-driven one,” the BofA analyst stated.

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