Stock Market Crash in 2026? Fed Chair Jerome Powell Has an Urgent Warning for Investors.

As shown, the S&P 500 has returned an average of 7% during the 12-month period following a forward P/E multiple above 22. Comparatively, the index has returned an average of 10% over every 12-month period.

More concerning, the S&P 500 has declined by an average of 6% during the two-year period following a forward P/E multiple above 22. Comparatively, the index has returned an average of 21% over every two-year period.

What does that mean for investors? A forward P/E ratio above 22 does not mean a market crash is imminent, though it is a possibility because the S&P 500 is predisposed to drawdowns under such conditions. However, historical data suggests the S&P 500 will add about 7% by January 2027 and decline about 6% by January 2028.

Wall Street expects S&P 500 companies to report an acceleration in revenue and earnings growth in 2026. Specifically, revenue is expected to increase 7.1% (up from 6.6% in 2025) and earnings are expected to increase 15.2% (up from 13.3% in 2025), according to LSEG.

Consequently, most analysts have an optimistic outlook for the U.S. stock market in 2026. The table details where 19 Wall Street investment banks and research organizations think the S&P 500 will finish the year. It also shows the implied upside from the current level of 6,950.

Sources: BMO Capital Markets, Reuters, Yahoo Finance.

As shown, the median forecast among 19 analysts says the S&P 500 will finish the year at 7,600. That implies 10% upside from its current level of 6,950.

However, Wall Street is notoriously bad at predicting how the S&P 500 will perform in any given year. In fact, the median estimate over the last four years was incorrect by an average of 16 percentage points. If anything, investors should be wary of Wall Street’s outlook.

With valuations elevated by historical standards, stocks could fall sharply if financial results fail to meet high expectations.

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Stock Market Crash in 2026? Fed Chair Jerome Powell Has an Urgent Warning for Investors. was originally published by The Motley Fool