Monthly S&P 500 forecast for September 2026
Seotember 1st, 2026
Our monthly S&P 500 forecast for September is a 1.09 percent increase over the average of August 2026.
The model-based forecast takes into account the changes in oil prices and wages. However, a forecast model cannot possibly capture the full impact of uncertainty caused by tariff wars and geopolitical tensions, such as the war in the Middle East.
Market volatility despite impressive Q2 earnings
Renewed hostilities in the Middle East and rising oil prices continued to dampen investor spirit in August. That said, the index still managed to close August at 7686, up 2.6% over the end of July.
US economic data are rather mixed: the labor market remains resilient, GDP growth and consumer spending are respectable by historical standards. Inflation cooled slightly in July, but rising energy prices make that unsustainable in coming months. Rising US Treasury yields show markets are not optimistic about inflation cooling further without any rate hike intervention.
The Fed Chairman, Kevin Warsh, reinstated his commitment to price stability in his Jackson Hole speech in August. Warsh previously hinted that rising 10 Year US Treasury yields are doing some of the heavy lifting that a rate hike would do. Indeed, the rising Treasury yields have implications for the massive long-dated bond issuance by big tech to fund their planned capex spending.
Credit spreads on the AA-rated bonds have lately widened as 10 Year US Treasury yields have risen. AA2 and AA3 are Moody’s ratings of the bonds issued by Google and Meta, respectively. Increased investor scrutiny is inevitable when bond spreads widen with rising inflation and increasing Treasury yields. Some of the recent volatility in US stock markets stems from concerns about big tech’s increased vulnerability to the pitfalls of debt financing. If big tech struggles to pay back its bond obligations, the systemic risk to the US economy would be tremendous.
Is Big Tech becoming ‘too big to fail’?
In July, the ‘Magnificent 7’ earnings had mixed reactions from investors. Despite delivering solid operational numbers (Microsoft, Meta, Alphabet, Apple), or beating headline EPS (Amazon), market focus was on their massive infrastructure and AI CapEx spending.
Nvidia reported in August. Again, the company beat revenue and EPS expectations, driven by AI chip demand. In the past, such solid performance would lead to big increases in the share price; investor reaction this time was rather muted. Overall, investors are applying more scrutiny to gross margins and earnings expectations as their anxiety grows over the AI bubble-bust scenario.
Although Big Tech’s ambitious AI CapEx carries some systemic risk, this is really the worst-case scenario. Unlike the 2008 financial crisis, when highly leveraged banks had to be bailed out by governments, these companies finance the biggest part of their AI investment with their solid cash flows. Similarly, in the dot-com crisis of 2000, start-ups rather than big tech with solid balance sheets were involved. Although the Fed lists AI as a top systemic risk to financial stability just behind geopolitical risks, this has more to do with the sheer scale of their investments affecting GDP growth.
PMI and consumer confidence deteriorate
The Chicago Purchasing Managers’ Index (PMI) fell to 47.1 in August 2026 from 57.6 in July and well below the market forecasts of 58.3. The latest data pointed to a renewed contraction in business activity. The contraction has been the steepest since December 2025.
The Conference Board’s consumer confidence index decreased by 0.8 points to 89.4 (1985=100) in August, down from 90.2 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose by 6.8 points to 121.2, following three months of consecutive decline. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell by 5.8 points to 68.2. The survey period for this month’s preliminary results was August 3–16. Already in June, US consumers were feeling pessimistic about the prospects of getting a job. This was when the US-Iran ceasefire was in place. The violation of the ceasefire and the restart of the conflict contributed to the deterioration in consumer sentiment.
Inflation falls, and Q2 GDP growth remains unrevised
The annual inflation rate in the US fell to 3.4% in July from 3.5% in June 2026. This was in line with market expectations. Falling energy prices owing to the ceasefire between the US and Iran were the main driver of cooler inflation. However, the renewed conflict and the rising energy prices in August indicate that the cooling in US inflation will be short-lived.
Personal consumption expenditures (PCE), a key barometer of inflation and consumer spending, was 3.7% at an annual pace in July, unchanged from June, and 0.1 percentage point above the consensus estimate.
Core PCE, which excludes the more volatile food and energy categories, was 3.3% in July, also unchanged and in line with market forecasts.
US Q2 gross domestic product (GDP) grew at an annualised rate of 1.5 per cent, down from 2.1 per cent in the first quarter. This was the second estimate for Q2. The reading was in line with economists’ expectations, making it the weakest pace of growth in more than a year (Source: Bureau of Economic Analysis (BEA)).
A September rate hike is gaining credibility
After the 25 bp rate cut in December 2025, the Fed’s target range for interest rates is 3.50% to 3.75%.
Energy prices have increased about 20 percent with the renewed hostilities in the Middle East. Despite the cooler July inflation, consumer prices will likely remain elevated till the end of 2026.
Fed Chair Kevin Warsh sounded hawkish in his Jackson Hole speech in late August. Warsh’s commitment to lowering inflation to the central bank’s 2% target would lose its credibility if the Fed holds rates unchanged in September. Therefore, given the resilience of the labor market, a rate increase in September may be a likely outcome. In the post-pandemic period, the Fed’s monetary tightening was criticised for being too slow, leading to a prolonged period of elevated prices. It is unlikely that Warsh would repeat the same mistake.
S&P 500 index is fairly valued
According to FactSet Insights from August 28, the forward 12-month P/E ratio for the S&P 500 is 19.6. This P/E ratio is below the 5-year average (19.9) but above the 10-year average (19.0). For Q2 2026, the blended (year-over-year) earnings growth rate for the S&P 500 is 52.0%. If 52.0% is the actual growth rate for the quarter, it will mark the highest earnings growth rate reported by the index since Q2 2021 (91.6%).
Overall, the index is close to fair valuation, owing to high earnings forecasts, driven by the AI boom. Investors are realizing that company earnings potential cannot be judged by historical standards. Indeed, the AI revolution is increasing productivity and reducing unit costs of most companies in the S&P 500 index. However, a sharp revival of inflation and higher Treasury and credit spreads are the potential threats to this best-case scenario.
Our monthly S&P 500 forecast is a model-based fair-value estimate. Announcements of tariffs and cancellations cannot be captured in our model unless the impact appears in historical data. The possible impact of geopolitical tensions enters the model through keyword searches (Google clicks) and the advanced retail sales index. However, these variables perform better in normal times. Our quarterly S&P 500 forecast discusses these issues in more detail.
