How the stock market will perform in 2026 is anyone's guess. Many investors believe the broader benchmark S&P 500 index is due for a pullback after several years of strong performance. There will also be midterm elections, and the market has historically struggled during those years.
However, some Wall Street strategists believe we may be in the midst of a prolonged bull market run fueled by artificial intelligence, and they predict the market will continue to rally. In fact, two prominent strategists and their teams forecast that the benchmark index, which is currently trading in the neighborhood of 6,800, could exceed 8,000 next year.
If the Federal Reserve is more accommodative than expected
Dubravko Lakos-Bujas, a market strategist at JPMorgan Chase, and his team recently published a research note with a base case target of 7,500 for the S&P 500 at the end of 2026, anticipating earnings growth of 13% to 15% over the next two years. The JPMorgan team also expects the Federal Reserve to cut its benchmark interest rate two more times early in 2026 before pausing.
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"However, should the Fed ease policy further (if inflation declines), we see greater upside with the S&P 500 surpassing 8,000 in 2026," Lakos-Bujas wrote in the note. As of this writing, the market is currently projecting four interest rate cuts between now and the end of 2026, although it's wise to keep in mind that the market's outlooks on those probabilities shift frequently.
Lower consumer and wholesale prices would bolster the case for more Fed easing, which would lift the market by removing a potential stagflation scenario. Last week, the market was cheered by the Producer Price Index readout for September, which showed that core wholesale prices increased just 0.1% from August, and rose 2.6% year over year, slightly below estimates.
American exceptionalism and an AI-driven market
Another part of Lakos-Bujas' thesis is that the U.S. will continue to drive much of the world's economic growth, thanks to its domestic resilience and the AI trend. While U.S. unemployment is rising slightly, it remains at a historically low level, and the gross domestic product is forecast to grow next year.
Lakos-Bujas is also not concerned about AI valuations, though the 30 primary companies in the AI space collectively trade at 30 times forward earnings. In his view, these companies offer "stronger earnings visibility, higher pricing power, lower balance leverage, and a consistent track record of returning shareholder capital relative to [the other 470 components of the S&P 500] trading at 19 times."
SNPINDEX: ^GSPC
Key Data Points
Market strategists at Deutsche Bank generally agree. Chief U.S. Equity & Global Strategist Binky Chadha assigned the S&P 500 an 8,000 price target for the end of 2026. Chadha said there is still a lot of institutional money that has been conservative this year. Deutsche Bank expects GDP growth of 3.1% next year (down only slightly from 3.2% in 2025), and the market to at least maintain its higher-than-average earnings multiple of 25 times trailing earnings. Strategists at the bank also anticipate continued advancements in AI, which will translate into meaningful productivity gains.
Still, Lakos-Bujas and Chadha do have concerns. Lakos-Bujas is concerned that the economy will remain highly fragmented, with AI creating too few winners and a K-shaped economy. Meanwhile, Chadha's concerns stem from corporate layoffs and a deteriorating labor market, which are impacting an economy heavily fueled by consumer spending.
Expect more volatility in 2026
Picking a price target for the benchmark index is challenging because one year isn't a lot of time, and any number of events that are impossible to predict could send the market tumbling or surging.
Regardless, I think investors should expect more volatility next year as the market continues to watch inflation and the labor market. There will also be more clues about the outlook for the AI space as investors gradually gain a clearer picture of AI capital expenditures and the returns on these massive investments by hyperscalers.
Long-term investors can stay the course, but should be prepared for the volatility. Investors who want to keep adding to their positions but are concerned about potential oscillations can employ strategies such as dollar-cost averaging to smooth out their cost basis over time.
