Time of the Season … For Year-End Targets

by Liz Ann Sonders, Kevin Gordon of Charles Schwab, 1/23/26

Key takeaways

  • Year‑end S&P 500 targets focus on a single calendar day, thus ignoring market volatility, regime changes, and the path investors actually experience throughout the year.
  • Strategists' forecasts tend to cluster not due to insight but due to career risk and herd behavior, resulting in targets that are routinely revised to chase the market rather than anticipate it.
  • Investors are better served by focusing on risk‑reward dynamics, dispersion, policy shifts, and what's happening beneath the index surface—not on a single, calendar‑based price target.

The turn of the calendar to a new year brings a tradition on Wall Street during which sell-side firms' strategists issue their year-end price targets for the S&P 500. We're not sure exactly why the topic is "hotter" this year, but we've been fielding more than the usual number of questions about why we don't join the pack and issue our own year-end forecasts.

I (Liz Ann) will never forget a conversation I had with Chuck Schwab in 2000 in the immediate aftermath of Schwab's acquisition of U.S. Trust, at which I was a senior portfolio manager. When Chuck and I were chatting about Schwab's creation of the role of Chief Investment Strategist—a role I've had since then—he specifically mentioned the distaste he had for the year-end price target exercise; somewhat simply because it's a form of market-timing that's impossible to do consistently well. It was music to my ears.

A "shunful" exercise

There are myriad reasons for us shunning the exercise. Perhaps most important is that the stock market doesn't move toward a destination; it traverses a path of uncertainty and instability. A single year-end forecast ignores: volatility along the way, interim drawdowns that matter to real investors, and multiple plausible regimes (soft landing, hard landing, reacceleration, policy errors, geopolitics, etc.).

Most year-end price targets are essentially reverse-engineered and/or backed into from assumptions … not discovered: "If earnings grow by X% and the price/earnings (P/E) multiple is Y, then the index must be Z." That assumes that earnings estimates won't change (they always do), that multiples are stable (they're not—especially when rates move), and that macro surprises conveniently cooperate (they don't). Targets aren't really forecasts; they're algebraic identities dressed up as insight.

Year-end targets implicitly assume continuity—that tomorrow looks roughly like today. But the largest market moves often come from discontinuities; e.g., inflation rising or falling, monetary or fiscal policy turning on a dime, tightening financial conditions breaking something, earnings breadth deteriorating even as the index continues to rise, etc. By construction, year-end price targets can't capture regime changes—only extrapolation.

Targets often confuse accuracy with usefulness. A strategist could be "right" on a December 31 close and still be somewhat useless to investors who had to endure significant drawdowns, sharp sector rotations, dispersions between large cap and small cap performance, etc. A year like 1987 is a perfect example. The S&P 500 started the year at 242 and ended the year at 247. A strategist with a year-end target that was very close to the price at the start of the year would have been "right." But of course, the path along the way toward a flattish return for the year was anything but stable. The S&P 500 was up nearly 40% by late-August that year before rolling over and then imploding to the tune of -23% on the single day now known as Black Monday, followed by a range-bound market into year-end.