What to expect from stocks in 2026
- - What to expect from stocks in 2026
John Towfighi, CNNJanuary 1, 2026 at 12:02 AM
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The S&P 500 rose 16.39% in 2025. Many Wall Street analysts expect smaller gains in 2026. - Michael Nagle/Bloomberg/Getty Images
The S&P 500 just completed a three-peat of double-digit gains. Will 2026 be a four-peat?
After three years of stellar gains, Wall Street widely expects the good times to keep rolling in 2026 — but with varied views on how much stocks will rally. Wall Street forecasts reviewed by CNN show a wide range of targets from strategists, though all estimate positive gains.
The S&P 500 ended 2025 at 6,845.5 points. Analysts at Bank of America expect the benchmark index to hit 7,100 by year-end 2026, suggesting a roughly 3.72% gain from now. Meanwhile, analysts at Deutsche Bank expect the S&P to hit 8,000 points by year-end, suggesting a gain of 16.87%.
When the S&P 500 has gained at least 15% in a year, the following year’s returns have averaged about 8%, according to Adam Turnquist, chief technical strategist at LPL Financial.
The S&P in those years had an average decline of roughly 14% at some point before rebounding and climbing higher. It’s a reminder that stock market gains are not always straightforward, Turnquist said.
US stocks climbed higher in 2025 despite whiplash from tariff announcements, fraught geopolitical tensions, affronts to the Federal Reserve’s independence and nerves about an AI bubble.
The S&P 500 fell as much as 19% in April as President Donald Trump rolled out aggressive tariffs, but the index sharply rebounded, soaring higher after the most severe trade threats were paused. The index ultimately recorded 39 new record highs across the year and gained more than 16%.
Stocks were powered higher by enthusiasm about tech and AI, a detente in severe trade tensions, optimism about Fed rate cuts and robust corporate earnings growth.
Expectations for further Fed rate cuts in 2026 and resilient earnings from corporate America continue to support a strong outlook for stocks.
“This year’s gains have shown that the bull market is all gas, no brakes,” said Hardika Singh, economic strategist at Fundstrat. “And there are few solid reasons to believe this run can’t extend into the next year.”
Yet Wall Street analysts also note that uncertainty about Trump’s pick for Federal Reserve Chair as well as persistent geopolitical tensions and tariffs could create headwinds for stocks after such strong recent gains.
Valuations — a measure of how pricey a stock is relative to the company’s earnings — were a hot topic in 2025, with Wall Street analysts noting that US stocks are becoming increasingly expensive.
While not a market-timing tool, high valuations can often correspond with undersized future returns (unless earnings growth continues to exceed expectations). After three years of such eye-watering gains, some strategists are less certain that US stocks have significant upside potential.
“We remain constructive on equities for 2026 as earnings continue to grow, but forecast lower index returns than in 2025, amid a broadening bull market,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said in a note.
2025 was a wild year for markets. Wall Street is optimistic about 2026. - Michael Nagle/Bloomberg/Getty ImagesThe bull case for 2026
The bulls on Wall Street point to AI. The technology has unlocked a new era of growth for US stocks, analysts say, with opportunities for considerable profits in the future.
“The US is set to remain the world’s growth engine, driven by a resilient economy and an AI-driven supercycle that is fueling record capex and rapid earnings expansion,” analysts at JPMorgan Chase said in a note.
Dan Ives, a tech bull and global head of technology research at Wedbush Securities, said his top five stock picks for 2026 are Nvidia (NVDA), Microsoft (MSFT), Apple (AAPL), Tesla (TSLA) and Palantir (PLTR).
In comparison to the stock market rally in the 1990s, stocks have a lot more room to run. The Fed is expected to lower rates at some point in 2026, also supporting higher stock prices.
Meanwhile, in November, the Dow began outpacing the Nasdaq — a sign of the stock market rally spreading out to left-behind companies, and expanding beyond just AI, helping support overall gains.
“Inflation is benign, interest rates are trending lower and earnings are trending higher, and that’s goldilocks for stocks,” said Terry Sandven, chief equity strategist at US Bank Asset Management.
Corporate America continues to post profits that impress Wall Street, pushing stocks higher. In the K-shaped economy, wealthier consumers continue to spend, supporting corporate earnings.
“Yes, stocks are expensive and AI bubble allegations are natural, but it’s not concerning to me because companies’ earnings keep growing,” Singh at Fundstrat said.
“The economy remains resilient, and while the gap between the top-income consumers and the lower ones has widened, until we see signs of slowdown with the top, worrying seems premature,” Singh said.
Ed Yardeni, president of Yardeni Research, expects the S&P 500 to rise to 7,700 at year-end 2026, suggesting a gain of almost 12.5%.
“Our year-end 2026 target for the S&P 500 assumes that the economy and earnings will remain resilient,” Yardeni said in a note. “Our odds of a severe correction or a bear market, triggered by either recession fears or an actual recession, remain low at 20%.”
The bear case
While Wall Street just celebrated another strong year of gains, the outlook for the global economy remains uncertain, and there is no shortage of risks for markets.
Geopolitical concerns are front and center. Gold just had its best year since 1979 as investors sought out safe havens, reflecting nerves that something could go wrong in the economy or in markets.
In recent months, stocks have rallied on optimism about Fed rate cuts. If inflation remains stubborn into the New Year, it could complicate the Fed’s rate-cutting path and pose trouble for stocks.
The American consumer continues to prove resilient, though data shows that spending is largely carried by wealthy households whose investments have risen in value in recent years. Meanwhile, people relying on paychecks feel like the economy is considerably crummy. Whether the labor market continues to muddle through will be key for gauging the health of consumer spending — and its potential effect on corporate profits.
The health of the labor market and consumer spending will be key for Wall Street to watch in 2026. - Kyle Grillot/Bloomberg/Getty Images
The US dollar languished in 2025. Fed rate cuts can lead to a weaker dollar, but lurking in the background are concerns about the central bank losing its independence from political agendas.
Christopher Harvey, chief equity strategist at CIBC Capital Markets, expects the S&P 500 to rise roughly roughly 8.8% in 2026. But Harvey noted that risks to watch for include concerns about credit markets, nerves about returns on AI spending, potential turmoil with the US-Mexico-Canada trade agreement set to expire this year and questions about Fed credibility.
There were also concerns in 2025 that have gone unaddressed and that will likely resurface in 2026, including the rise of long-term borrowing costs across the globe and persistently large government deficits.
“Overall, the market environment remains fragile, and investors must navigate a landscape where risk and resilience coexist,” Fabio Bassi, head of cross-asset strategy at JPMorgan Chase, said in a note.
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Source: “AOL Money”
