Even with the S&P 500 taking a near-4% tumble this month, the flagship US index has nonetheless proven to be a superb investment in the 2025/26 tax year.
Fun fact: anyone who put £10,000 to work on 7 April 2025 with an index tracker fund, is now sitting on an impressive £13,244 – a 32.44% total return!
With the current tax year quickly coming to a close, investors will soon see their annual ISA allowance reset to £20,000. So the question now is, will the S&P 500 deliver more explosive gains in 2026/27?
What the experts are saying
Seeing a 30%+ return from the S&P 500 is pretty exceptional. And it’s a perfect example of the outsized gains investors can unlock when capitalising on stock market chaos.
Don’t forget April 2025 was when global US tariffs were unveiled, causing mass panic throughout the stock market, resulting in a sharp downward correction. But with the initial impact of tariffs later proving to be far less severe than anticipated, it didn’t take long for the S&P 500 to recover and climb even higher.
The question now is, how much higher can it climb in 2026?
Despite the uncertainty being created by the new conflict in the Middle East, the consensus among most institutional investors remains fairly upbeat, with Oppenheimer currently having the most optimistic target of 8,100 points by the end of 2026. Compared to where the index is trading today, that implies a 22.3% potential return, driven by AI productivity gains across multiple industries.
Obviously, this outcome’s far from guaranteed. And even if AI efficiency boosts materialise, today’s elevated valuations could already have these future profits priced in. In other words, investing in an S&P 500 index tracker may not live up to performance expectations.
But are there any interesting opportunities for stock pickers?
Opportunities outside tech
Outside the world of AI and technology, analysts have spotted several interesting opportunities, particularly in unpopular sectors like financials. And one potential screaming bargain right now might be PayPal (NASDAQ:PYPL).
The fintech giant has been sold off quite aggressively in recent years. And even in 2026, its downward trajectory has continued by another 23%. Yet, when looking at the underlying business, the valuation looks unusually cheap.
While growth has struggled, the company remains enormously cash-generative with underlying free cash flow landing at $6.4bn last year. And management’s subsequently executing aggressive share buybacks to take advantage.
Earlier this month, PayPal appointed Enrique Lores to take over as CEO, who has outlined a plan to get growth back on track. And if this strategy proves successful, this currently unloved fintech business could see a massive rally from today’s prices.
What could go wrong?
Competition within the fintech space is becoming increasingly fierce, with platforms such as Stripe and Shopify displacing PayPal as the default checkout options for online merchants.
Diversifying into the Buy Now Pay Later space opens the door to new growth opportunities, but just like with regular payments, this area too is filled with well-funded rivals that undercut the firm’s pricing power.
Put simply, PayPal might just be a melting ice cube – a strong business that’s slowly losing market share. But with new leadership being brought in to try and evolve the business, today’s massive discounted valuation might make this a risk worth considering.
