The S&P 500 had a big year in 2025, making headlines as it reached another all-time high, growing over 16% across the year. As 2026 begins to take shape, many investors are considering what’s in store for the US’ flagship stock market.
What is the S&P 500?
The S&P 500 is a US stock market index made up of 500 of the largest publicly listed companies in the United States. It covers around 80% of the total US stock market and is widely seen as a barometer of the American economy.
The index includes global giants across a broad range of sectors:
- Technology – Apple, Microsoft, Nvidia
- Healthcare – Johnson & Johnson, Pfizer
- Financials – JPMorgan Chase, Bank of America
- Consumer goods – Coca-Cola, Procter & Gamble
Because of this broad mix, the S&P 500 offers effective diversification across industries if not geographies.
It has, also, historically boasted strong returns over long periods too. The average annual return of the S&P 500 since its inception in 1957 is 10.33% – or 6.47% when adjusted for inflation.
Of course, it’s important to remember that past performance is not indicative of future returns.
What’s next for the S&P 500?
So, what could be in store for 2026? Here’s InvestEngine’s Head of Investments, Andrew Prosser, with the outlook.
“As we head into 2026, the S&P 500 isn’t starting the year from “cheap” levels. Valuations are still well above long-term norms, which matters because it raises the bar for future returns. From here, the market will likely need to see a mix of solid earnings delivery, help from interest rates, and a few positive surprises to repeat the gains of recent years.
A “valuation” is just a way of asking: how expensive is the stock market compared with company profits?
One of the most common measures is called the P/E ratio, which stands for “price-to-earnings”. In simple terms, it tells you how many pounds investors are paying for £1 of company profit. A widely used “forward” P/E (which looks at expected profits over the next year) suggests investors are paying around 25 times next year’s profits for the S&P 500. That’s higher than normal.
Another long-term measure looks at profits over the past 10 years (to smooth out booms and recessions). That measure is also very high by historical standards, and is now at levels not seen since the dot-com boom.
For investors, this shouldn’t be a signal to stop investing (or move to cash). Trying to time the market in the short term based on valuations is a recipe for disaster, as the correlation between starting valuations and 12-month returns is almost zero. But it does mean investors should moderate their expectations.
It’s becoming increasingly difficult for the US market to continue to generate the levels of return investors have become accustomed to in recent years. When valuations start high, it’s harder for returns to be driven by “multiple expansion” (investors paying ever-higher prices for each £1 of earnings).
In 2026, a larger share of the return will likely have to come from earnings growth and dividends/buybacks. Not only that, but the market may be more sensitive to disappointments, particularly in relation to the earnings of the big tech companies.
Speaking of earnings, if 2026 ends up being another good year for US equities, it’s most likely because profits continued to beat expectations – which are still high. Analysts are currently pencilling in a strong year, with expected S&P 500 earnings growth of around 12% in 2026 – a high bar to clear.
AI will undoubtedly continue to be a key expected driver of earnings growth in 2026. If 2025 was the year of gigantic AI capex spending from the hyperscalers, 2026 will be about proving the payoff. What the market will be looking for is whether these companies are able to translate these huge spends into revenue, pricing power, productivity gains, and ultimately margins/free cash flow.
Outside of AI, further rate cuts by the Fed could prove to be a tailwind for the US market next year. Current interest rate forecasts for next year show two more Fed cuts for the year. This matters for the S&P 500, because lower interest rates are generally thought of as positive for corporate earnings.
Lower rates mean that a) companies spend less on servicing their debt, b) more corporate investment projects make sense (because their cost of capital has lowered), and c) consumers are willing to spend more, as mortgage and other loan repayments reduce. However, the relationship between lowering rates and returns isn’t always straightforward – if rates are falling because growth is weakening, that can offset the benefit.
Overall, 2026 looks less like a year for “easy” gains and more like a year where returns will need to be earned through delivery – particularly on earnings, margins and credible AI monetisation.
For us UK investors, the sensible approach is to stay diversified, keep a long-term horizon, and treat any near-term volatility as the price of admission rather than a reason to abandon a plan.”
Why UK investors choose the S&P 500
The S&P 500 has been a popular index for investors since its creation. There are a number of reasons for this – US economic power being one of them.
Many UK investors look to the S&P 500 as a way to:
- Access high-growth sectors such as tech and biotech
- Diversify beyond the UK market, which is smaller and more focused on sectors like finance and energy
- Take a passive investing approach with low-cost ETFs that track the index
- Build long-term growth in their ISA, SIPP, or general investment account
Of course, investing always carries risk — but for those with a long-term horizon, the S&P 500 is a popular choice as part of a globally balanced portfolio.
How to invest in the S&P 500 from the UK
You can’t invest directly into the S&P 500. You can, however, invest into an index fund or exchange-traded fund (ETF) that tracks the index.
1. Invest via an S&P 500 ETF
One of the easiest and most cost-effective ways to invest in the S&P 500 is through an Exchange-Traded Fund (ETF) that tracks the index.
Some options include:
- Vanguard S&P 500 (VUAG) – A low-cost tracker (TER: 0.07%) with wide availability.
- SDPR S&P 500 (SPXL) – An alternative way into the S&P 500 with a very low TER of 0.03%.
- Invesco S&P 500 (SPXP) – A slightly different structure but similar exposure, with a TER of 0.05%.
It’s important to remember that TER isn’t the only consideration to make when selecting an ETF, so do your research before jumping in.
All of these ETFs are available on the InvestEngine platform — with no trading fees or platform charges for DIY investors (ETF costs still apply).
2. Choose your investment account
Choosing your account type is an important decision for anyone looking to invest. Depending on your goals, you can hold your ETF in:
- A Stocks and Shares ISA – Invest up to £20,000 per tax year with no tax on gains or income.
- A SIPP (Self-Invested Personal Pension) – Get tax relief on contributions up to £60,000 a year, and grow your pot tax-free until retirement.
- A GIA (General Investment Account) – Flexible, with no limits, though gains and dividends may be taxed above your allowances. Ideal for anyone who has maxed out their ISA allowance already.
Want to invest through your company? Our Business Account also supports ETFs tracking all major markets.
We compare ISAs and SIPPs in this article. They do different things but, for a lot of investors, one or both will be sufficient.
3. Invest regularly or as a lump sum
Watch our video explainer to learn more about how investing regularly compares to investing a lump sum.
In summary, you can invest:
- As a lump sum — ideal if you’ve got savings ready to go and want to avoid high inflation
- With a Savings Plan — set up automated weekly, fortnightly, or monthly contributions from as little as £20 to keep your portfolio ticking
InvestEngine’s Savings Plans mean you can set an investing schedule and sit back and relax. Simply choose when, how often and how much you want to invest – we’ll do the rest.
Paired with AutoInvest and fractional investing, your money is invested instantly and automatically – no manual trades needed.
What to watch out for
While S&P 500 ETFs are a straightforward way to access the US market, there are a few things to be aware of:
Currency risk
These ETFs are priced in US dollars. If the pound strengthens against the dollar, it can reduce your returns (and vice versa). You’re not just exposed to the index, but to exchange rate fluctuations too.
Volatility
The S&P 500 can rise – and fall – quickly. Like any stock market investment, it’s important to take a long-term view and avoid reacting to short-term noise. Investing isn’t a one-way journey to gains, there will be ups and downs along the way.
Overconcentration
Though S&P 500 ETFs tend to be reasonably diversified, they’re obviously limited to the US. They also often have a significant portion allocated to tech. These can be concentration risks under some circumstances.
Why use InvestEngine to invest in the S&P 500?
With InvestEngine, you get:
- Commission-free investing – No trading or platform fees for DIY portfolios
- Wide ETF choice – Including a range of major S&P 500 ETFs and other popular indices
- Flexible accounts – ISA, SIPP, GIA, or Business Accounts for all your investing needs
- Regular investing tools – Set up automated contributions with Savings Plans
Whether you’re building your retirement pot or investing for the long term, we make it simple, cost-effective and tax efficient.
Final thoughts
The S&P 500 is one of the most widely followed indices in the world. It’s a great way for investors to gain exposure to some of the most influential companies on the planet.
With a low-cost ETF, you can access this market easily and efficiently – particularly when investing through an ISA or SIPP.
Just remember: it’s important to think about how US exposure fits within your broader investment strategy. Diversification is key — and combining the S&P 500 with UK, European or global ETFs, for example, can help investors spread risk.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.