Even with all the recent volatility in the ‘Magnificent Seven’ stocks, the S&P 500 continues to trade near record highs. And in the last five years, index investors have seen their wealth grow by an impressive 77.5%.
This jumps to 90.9% for those who have been reinvesting dividends along the way. And in terms of money, that means a £20,000 initial investment in March 2021 is now worth roughly £38,180.
But past performance sadly doesn’t guarantee continued strong gains from America’s flagship index. So is the S&P 500 still a good investment in 2026?
Institutional outlook
There’s a lot of uncertainty plaguing the US stock market at the moment. Beyond concerningly high valuations driven by expected AI-driven earnings efficiencies, the economy’s exposed to a variety of disruptive forces. Most notably is the growing proportion of fragile consumers.
Short-term, tariff-induced inflation is putting pressure on household wallets. And with the labour market starting to show signs of weakening, a growing number of consumers are increasingly dipping into savings and turning to credit cards to help cover the cost of living.
This concerning trend is only expected to accelerate following the breakout of war in Iran, which is anticipated to trigger significant energy and fuel inflation. While some of this pressure’s expected to be eased by income tax cuts as part of President Trump’s “One Big Beautiful Bill”, there are growing fears of a potential recession and a subsequent downward correction of stock prices from multiple analysts.
As a result, most institutional forecasts are only projecting an average 3%-7% annualised growth for the S&P 500 over the next five years. That’s a massive slowdown compared to the 15% average enjoyed since 2021. Therefore, assuming these projections are correct, investing £20,000 into the S&P 500 today may only yield £23,185-£28,051 by March 2031.
But for stock pickers, the returns could be far more substantial…
Exploring opportunities
While the S&P 500 as a whole is looking quite expensive, that’s not the case for all of its constituents. And analysts have flagged several US stocks that could significantly outperform over the next five years. The list includes UnitedHealth Group (NYSE:UNH).
The health insurance group has come under significant pressure of late as the proportion of money paid out in medical claims increased versus the revenue brought in through insurance premiums. And while the shift was relatively small, when applied to its massive $400bn+ insurance book, the impact translated into a 41% year-on-year drop in operating earnings.
However, bullish analysts are arguing that this is only a temporary cyclical problem. So through a combination of premium price hikes as well as improved underwriting discipline, the bottom line will eventually recover. And even Warren Buffett appears to have come to a similar conclusion with a $1.6bn investment in the second quarter of 2025.
Hiking insurance premiums during periods of consumer weakness is a tricky endeavour. And it’s a risk that could backfire if competitors undercut their pricing.
Nevertheless, a successful multi-year recovery could see UnitedHealth shares outperform the S&P 500 at today’s undemanding valuation. That’s why I think investors should take a closer look.
