Three Paths to a Potential 39% S&P 500 Gain

Over the past 12 months, the S&P 500's rally has been built on a narrow but relatively durable foundation—rising earnings expectations, rather than investors' willingness to pay higher prices for the same earnings.

That distinction is at the core of the outlook discussed by Ritholtz Wealth Management CEO Josh Brown and DataTrek co-founder Nick Colas. In their view, the quality of this rally matters as much as its scale—and so far, the advance has been driven by earnings rather than exuberance.

At roughly 20 times earnings, the scope for further gains depends heavily on whether analysts continue to revise forecasts upward, and whether interest rates, oil, and geopolitical risks ease enough to justify higher valuations.

Brown and Colas examined three bullish paths for the next 12 months, noting that each requires evidence, not optimism.

Earnings-Fueled, Valuations Unchanged

The most straightforward read of the current tape is direct: if the market keeps delivering profit growth, it can rise even without the tailwind of valuation expansion.

Colas sees the most likely upside at 6% to 16%, assuming the S&P 500 holds a price-to-earnings ratio of about 20 times.

Brown notes: "Without expansion—where we just hold the current multiple, but the earnings growth we've been experiencing continues."

At current valuations, there is little room for disappointment, but if corporate America keeps executing well, the path to returns is equally clear. Colas backed this view with data, pointing out that this year's gains are "100% earnings driven" and that in most years, analysts "start high and revise down," rather than raising estimates mid-year.

What Could Unlock Better Outcomes?

Colas sees the intermediate scenario implying 13% to 28% upside, requiring both earnings growth and multiple expansion to about 22 times.

"That would be great, but it's not the most likely scenario," Brown said, emphasizing the distinction between probability and possibility.

In this scenario, geopolitics, oil, and valuations are linked. If conflict risks fade, energy prices fall, inflation pressures ease, and rate volatility settles, investors may be willing to pay higher prices for each dollar of earnings.

The Real Test for AI Lies in Revenue, Not Narrative

The most bullish path—a multiple of 24 times and upside of 12% to 39%—draws the sharpest skepticism. Colas insists that AI enthusiasm must translate into measurable revenue for both suppliers and customers, not just gains in programming efficiency.

This argument echoes recent remarks by Bob Elliott referring to Kellogg, where the economist argued that final revenue must come from the real economy.

Investors need confirmation across the entire AI supply chain, showing monetization and corporate clients displaying profitability tied to AI spending. The most optimistic scenario is not impossible, but it requires everything to fall into place.

Colas closes: "You need three things to go right. Sun, moon, and stars. All three must align."