Wall Street Says the Stock Market's Return Will Crush the Long-Term Average in the Next Year

About 5,500 companies are listed across U.S. stock exchanges as of the first quarter of 2026, according to the Security Industry and Financial Markets Association. Of those companies, 500 of the largest U.S.-based businesses are included in the S&P 500 (SNPINDEX: ^GSPC), an index that is generally synonymous with the domestic stock market.

Read on to learn how the S&P 500 performed over the last 20 years and what Wall Street expects from the benchmark index over the next year.

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The S&P 500 returned 9.3% annually over the last 20 years (excluding dividends)

The S&P 500 was created in March 1957. The index is generally viewed as the best gauge for the overall U.S. stock market because it measures the performance of 500 large companies that account for more than 80% of domestic equities by market value.

Inclusion is ultimately at the discretion of a selection committee, but companies cannot be considered unless they meet certain eligibility criteria. They include profitability over the last four quarters according to generally accepted accounting principles (GAAP), sufficiently liquid stocks, and a minimum market capitalization of $22.7 billion.

The index is updated during quarterly rebalancing events on the third Friday of March, June, September, and December. Coherent, EchoStar, Lumentum, and Vertiv joined the index in March. However, companies can be added at any time. Veeva Systems joined the S&P 500 in April to replace Coterra Energy after it was acquired by Devon Energy.

The S&P 500 is most heavily weighted toward technology stocks. The five largest positions in the index are listed by weight below:

1. Nvidia: 8%
2. Apple: 7.1%
3. Alphabet: 6.2%
4. Microsoft: 4.9%
5. Amazon: 4.1%

Excluding dividends, the S&P 500 advanced 492% (9.3% annually) over the last 20 years. Including dividends, the index achieved a total return of 768% (11.4% annually) during the same period.

Wall Street analysts expect the S&P 500 to return 14.7% over the next year

Wall Street analysts expect S&P 500 companies' earnings to increase 25% in 2026, up from 14% in 2025, per LSEG. Factors contributing to faster earnings growth include robust spending on artificial intelligence infrastructure and corporate tax breaks included in President Donald Trump's "big, beautiful bill."

In turn, Wall Street analysts generally anticipate a strong performance from the S&P 500 in the next year. The index has a median 12-month target price of 8,698, according to FactSet Research. That implies 14.7% upside from its current level of 7,580, well above the average return of 9.3% annually over the last three decades.

Of course, investors should never put too much faith in Wall Street's forecasts, and that is particularly true in the current market environment. Inflation has accelerated as the Iran war has pushed oil prices to a multiyear high, and the situation may force the Federal Reserve to raise interest rates. Rate hikes have historically been bad news for the stock market.

Meanwhile, the prospect of higher interest rates has caused government bond yields to spike. The 30-year Treasury paid 5.18% at one point in May, the highest level in nearly two decades. Elevated yields are generally bad news for stocks because they make bonds more attractive. Indeed, the last time the 30-year Treasury paid 5.18%, the S&P 500 dropped 20% over the next year.

Here's the bottom line: Wall Street analysts expect strong earnings growth to drive the S&P 500 much higher over the next year, but the Iran conflict is a source of significant economic uncertainty. Investors should hope for the best, but mentally prepare for the worst. Now is not the time to take big risks.

Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Coherent, FactSet Research Systems, Lumentum, Microsoft, Nvidia, Veeva Systems, and Vertiv. The Motley Fool has a disclosure policy.