Is the S&P 500 heading for a stock market crash?
In 2025, the S&P 500‘s gone from strength to strength. Supported by the stellar performance of tech giants, Americaâs flagship index has climbed another 14.5% since January, or 15.9% when counting dividends.
But after generating a 26.3% gain in 2023, followed by a 26.9% boost in 2024, is the market momentum slowing? And could 2026 see yet another stock market correction, or even full blown crash?
Three warning signs vs three bull signs
According to institutional analysts, there are a variety of forces at work that could indeed trigger a market downturn. But three of the most prominent include:
- Extreme market concentration â 34.4% of the entire S&P 500 is concentrated into just the Magnificent Seven stocks, with almost half of all earnings driven by a handful of tech giants.
- A fragile labour market â US unemployment’s steadily creeping upwards, reaching a new four-year high of 4.6% in November, hiking the risk of a looming recession.
- Elevated valuations â lofty share prices relative to earnings, particularly within sectors like artificial intelligence (AI), are raising the risk of volatility.
With these factors in mind, it isn’t so surprising to see some investors grow nervous. However, despite the rising pessimism, a crash or even a correction is by no means guaranteed. In fact, there are several reasons why the S&P 500 could continue to outperform next year:
- Massive economic stimulus â new corporate and consumer tax cuts in 2026 are estimated to contribute $285bn of stimulus (roughly 1% of US GDP).
- More interest rate cuts â continued downward adjustments to interest rates by the Federal Reserve could offset recession risks and stimulate stock prices higher.
- AI productivity gains â tangible benefits of using AI tools are starting to emerge, with profit margins as a whole slowly starting to expand.
What now?
My strategy hasnât changed. Iâm avoiding popular overvalued stocks and focusing on finding under-the-radar opportunities. And one that Iâve recently added to my ISA is Cellebrite (NASDAQ:CLBT).
As a quick introduction, Cellebrite’s the world leader in mobile phone decryption technology. Its tools are used by almost all law enforcement agencies across the US and Europe for criminal and cybersecurity investigations. And 2026 could be a transformational year. Let me explain.
In 2024, management began the process of securing FedRAMP authorisation â a certification that allows Cellebrite to offer its cloud services to US federal agencies that have exceptionally rigorous security clearance requirements.
Itâs not an easy certification to acquire, and there have been multiple delays. However, Cellebrite appears to be on track to finally receive the greenlight early next year. And current estimates suggest it could add anywhere between $50m and $150m to the groupâs annual recurring revenue.
Considering total revenue in 2024 was $401m, thatâs a massive growth catalyst potentially just around the corner.
Of course, it does introduce some significant risks. Federal customers already make up around 20% of the companyâs revenue stream. And with FedRAMP, this concentration would likely increase even further, making Cellebrite vulnerable to future government spending cuts.
Thatâs a risk investors will need to consider carefully. But personally, given the near-term and long-term growth opportunities, itâs one Iâve decided to take with a small opening position of 2% of my growth portfolio. But itâs not the only US stock Iâve been snapping up.
The post Is the S&P 500 heading for a stock market crash? appeared first on The Motley Fool UK.
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Zaven Boyrazian has positions in Cellebrite. The Motley Fool UK has recommended Cellebrite. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
