Buying SPX with $7,500 in view

Following its remarkable rally in 2025, the S&P 500 Index (SPX) is now riding the waves of increased volatility. However, most Wall Street analysts remain moderately optimistic regarding the asset’s future but call for caution. While several factors favor the SPX outlook for 2026, certain risks are also present.

Key upside drivers:

Increasing EPS. The cumulative earnings of companies included in the S&P 500 are projected to rise by 11–13% this year, led by the technology and healthcare sectors.

Uncertain Fed’s monetary policy. According to market expectations, the US Federal Reserve is likely to hold interest rates in the 3.50–3.75% range, but any hint at further easing may bolster SPX.

Active AI implementation. In 2026, the spotlight is shifting from hardware suppliers (NVIDIA) to companies successfully generating significant revenue by integrating artificial intelligence into their core business processes (software).

Key risks and signs of an overheated market:

Buffett Indicator extremes. The ratio of total capitalization to GDP is at historic highs (over 220%), suggesting that the market is significantly overvalued.

Tech sector concentration. Ten largest firms still account for roughly one-third of the index’s total cap, creating vulnerability to any downturn in the tech sector.

Elevated multipliers. The S&P 500's price-to-earnings (P/E) ratio is currently around 22–23, well above its historical average (16–18).

2026 is seen as a year of “normalization.” After the previous period of explosive growth, returns are expected to be lower, though a long-term “buy and hold” strategy remains valid.

The ultimate recommendation is to buy SPX for the long run. Place a Take profit order at $7,500. Set Stop loss at $6,670.

Always size the position so that your potential loss (protected by Stop loss) is no more than 1% of your account balance. If you can't open a position that meets such a risk criterion, it's safer to skip this trade and wait for a better, lower-risk opportunity.