Risks are everywhere from uncertain trade policy, geopolitical concerns, stubborn inflation, sagging consumer sentiment, lofty stock valuations and uncertainty surrounding AI adoption, but momentum and a relatively solid macro environment may translate into another strong year for stocks — at least, this is what analysts are forecasting.
Where the markets are going in 2026 is a big question. The past three years have delivered solid returns. And now, maybe as much as ever, forces that would push markets higher, or lower, seem unmistakably strong.
For instance, geopolitical tensions are obviously high as recently demonstrated by the Greenland-related selloff and subsequent bounce back. The potential for more geopolitical turbulence spilling into the markets is enormous as global alliances and assumptions are being reevaluated.
And separate from global conflicts, there are any number of problems within the United States that could set back the seemingly unstoppable U.S. stock market. These include a dour consumer facing serious affordability constraints as healthcare and grocery prices are rising while mortgage rates, and housing costs more broadly, remain elevated.
Yet there are plenty of arguments for the bull market to continue through a fourth year and beyond, starting with momentum — the propensity of a rising market to continue on an upward path.
Enthusiasm for the purported benefits of artificial intelligence remains strong. Furthermore, capital investment in this space, which is intrinsically stimulative, continues unabated despite widespread chatter over a potential bubble in AI.
And while stocks are expensive based on historical valuation measures like the relationship between share prices and corporate earnings, U.S. companies are expected to churn out even higher profits in 2026, which could prove the current lofty valuations to be justified.
Finally, from a macro perspective, the Fed may not be able to deliver the rate cuts Wall Street had previously expected due to inflation lingering above its target of 2%. But from a fiscal standpoint, tax cuts combined with increased government spending are expected to add stimulus to the economy.
Wall Street is forecasting a great year
At the big banks and the boutique investment shops, an optimistic consensus has taken hold: the US stock market will rally in 2026 for a fourth straight year, marking the longest winning streak in nearly two decades.
There’s plenty of angst about the risks to the bull run that’s pushed the S&P 500 Index up some 90% since its October 2022 low. The artificial-intelligence boom could turn to bust. The economy — and the Federal Reserve’s interest-rate decisions — could defy expectations. And the Trump administration’s second year could bring even more unanticipated shocks than the first.
But after three years when the equity market’s rip-roaring run made a mockery of any bearish calls, strategists are now marching in lockstep optimism, with the average year-end S&P 500 forecast implying another 9% gain thisyear. Not a single one of the 21 prognosticators surveyed by Bloomberg News is predicting a decline.
“The pessimists have just been wrong for so long that people are kind of tired of that schtick,” said veteran market strategist and longtime bull Ed Yardeni. He expects the S&P to finish next year at 7,700 — up 11% from its current level — yet even he finds the lack of dissent a little concerning.
“That’s where my counter instincts come out: Things have been going my way for so long that it is kind of worrying that everyone else seems to have become optimistic,” he said. “Pessimism is on the out right now.”
Indeed, the market does have a record of defying consensus expectations. And the fact that all 21 of the analysts in Bloomberg’s survey are expecting another year of gains should suggest an alternative outcome may be in the offing.
In fact, if the Wall Street forecasters are correct in 2026, stocks will be heading for their longest stretch of annual gains since the lead-up to the Global Financial Crisis. And if the highest targets among the cohort prove correct, it would mark the first time the S&P has seen four years of double-digit returns since the dot-com bubble of the 1990s. These are sobering reminders, as neither of these stock runups ended well for investors.
Conclusion
Forecasters are optimistic about the bull market continuing. And if the resilience of the market in the first half of January is any indication, these forecasts may prove accurate. While it is true that valuations are stretched, it is also true that corporate earnings are expanding at a very healthy rate as well.
Consumer spending, the beating heart of the U.S. economy, is still holding up, even as concerns about affordability for lower-income households persist. This strength is due in large part to consistent spending by affluent households, which now account for roughly half of consumer spending.
Labor market data shows that while unemployment is historically low, at 4.4 percent as of December, net hiring levels have substantially deteriorated, affecting new graduates and the long-term unemployed alike.
Forecasts for 2026 suggest moderate global growth around 3.2% and real GDP growth in the U.S. around 2%. Inflation in the U.S. is also expected to remain above the Fed’s 2% policy goal, but may fall to near this goal by year-end.
Labor market resilience coupled with inflation will be the two major indicators the Fed will use to make its crucial rate decisions. And these decisions by the Fed will have an outsized impact on the accuracy of stock forecasters’ rosy predictions.