How Much Higher Can the S&P 500 Climb From Here? Wall Street Analysts Share a Resounding Answer.

The S&P 500 (SNPINDEX: ^GSPC) is in the midst of a phenomenal bull run now approaching the end of its fourth year. Massive spending on advancing artificial intelligence has driven earnings for some of the world's biggest companies and lifted stock prices along with it.

While some concerns have kept the market index at bay, the market has mostly brushed them off in short order. Potential disruption from AI led to a massive sell-off in software stocks earlier this year, before the U.S. attack on Iran sent the entire market lower as oil prices spiked. Despite the various headwinds facing U.S. markets, analysts remain as bullish as ever on stocks.

There's a lot of upside left, according to Wall Street analysts. Here's how much higher they think the S&P 500 can climb from here.

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How much upside is left in the S&P 500?

Sell-side analysts produce reports on individual stocks, indicating a buy, sell, or hold rating on each company they cover and often including a 12-month price target. By aggregating the price targets of analysts for all S&P 500 companies they cover and averaging them for each stock, FactSet created a "bottom-up" price target for the index. Based on data from the end of June, that price target was 8918. That represents upside of 18% from the current level as of this writing.

Another 18% gain for the S&P 500 over the next 12 months would put the total return of the bull market at over 150% and push its length to about 4.75 years. That's actually about average for an S&P 500 bull market since 1942.

However, before investors start banking on another 18% climb in the benchmark index, they should understand some key details and the underlying assumptions for analysts' price targets.

What's behind analysts' estimates

The biggest caveat about Wall Street price targets is that analysts have a bullish bias. That's totally understandable, of course. You have to expect stock prices to climb, at least in the long run, if you're going to be an investor. But analysts are bullish on more S&P 500 companies than they've ever been, according to data going back to 2010.

Nearly 60% of all ratings recommend buying the stock in question. That's particularly noteworthy because there have been only three years since 1995 in which more than 60% of S&P 500 stocks outperformed the index.

The second factor investors should consider is the underlying assumptions about earnings growth. Analysts are modeling aggregate earnings-per-share growth of 25.3% over the next year. That's well above the market's historic average. What's more, they see long-term earnings growth averaging 25.4% over the next five years, the highest rate analysts have projected, according to data going back to 1985.

That's to say that analysts are extremely bullish right now. It may be more prudent to exercise some caution amid the excitement among analysts.

Adding to the risk is that earnings growth expectations appear highly dependent on continued AI spending. The market has seen concentrated outperformance for several years, with a handful of AI-centric companies driving the majority of the index's results. Broader market performance remains elusive, and investors who haven't bought into the right sectors have probably underperformed over the past few years. Analysts, on average, don't expect broader market performance. And if AI spending slows or hyperscalers fail to deliver earnings results in line with expectations, it could negatively affect overall market sentiment, leading to lower stock prices.

That shouldn't deter anyone from buying stocks or an S&P 500 index fund at today's price, though. Even if analysts' expectations prove too bullish, the long-term trend for stocks remains up and to the right. But expecting another 18% gain over the next 12 months could be pushing the limits of the current bull market without another catalyst to drive earnings results for the broader market.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.