Investors just got great news about the U.S. economy. Despite headwinds from President Donald Trump's tariffs -- such as the highest unemployment rate in over four years -- gross domestic product (GDP) increased at an annualized 4.3% in the third quarter, according to the Bureau of Economic Analysis.
Analysts had expected GDP to increase at an annualized 3.3%, but economic growth easily surpassed that figure due to strong consumer spending and business investments. To add context, GDP growth averaged 2.7% annually over the past decade, so the latest print was quite strong.
Importantly, while President Trump took a victory lap after the data was released, many economists say GDP growth was artificially high due to trade distortions created by tariffs. For instance, many companies rushed to import inventory ahead of tariffs earlier in the year, so imports (which are subtracted from GDP) were abnormally low in the third quarter.
Nevertheless, the economy is growing at a robust pace. In turn, the S&P 500 (^GSPC 0.24%) has advanced 18% year to date, and Wall Street is very optimistic about 2026. Here's what investors should know.
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Wall Street expects earnings growth to accelerate in 2026 as the AI boom continues
President Trump's tariffs have raised the average tax on U.S. imports to 16.8%, the highest level since 1935, according to the Budget Lab at Yale. Many economists initially warned of a deep recession, and many analysts responded by cutting S&P 500 earnings forecasts. But the economy has proven far more resilient than anticipated.
As mentioned, GDP growth accelerated to an annualized 4.3% in the third quarter, up from 3.8% in the second quarter. Both figures are much higher than the 10-year average of 2.7%. Meanwhile, S&P 500 earnings are on pace to increase 13.2% in 2025, up from 12.1% in 2024. And analysts estimate that S&P 500 earnings growth will accelerate to 15.5% in 2026, according to LSEG.
In 2025, analysts expect the information technology and communications services sectors to lead the market with earnings growth of 25.4% and 20.5%, respectively. In 2026, analysts expect earnings across the information technology sector to accelerate to 30.4% amid strong demand for artificial intelligence (AI) hardware and software.
Wall Street expects another strong year for the U.S. stock market in 2026
In total, analysts have over 12,600 ratings on individual stocks in the S&P 500. FactSet Research aggregates those target prices and selects the median forecast for each stock to create a "bottom-up" forecast for the entire index. The S&P 500 currently has a median target price of 8,011, which implies 15.5% upside from the current level of 6,930.
Importantly, some analysts have outlined bull-case scenarios, as detailed below:
- JPMorgan Chase strategists say the S&P 500 could hit 8,200 next year if earnings impress and cooling inflation enables the Federal Reserve to cut interest rates more than twice. The firm's top picks include Alphabet, Arista Networks, and Broadcom.
- Evercore strategists say the S&P 500 could reach 9,000 next year if trade policy uncertainty dissipates, artificial intelligence boosts productivity, and the Federal Reserve cuts interest rates more than expected. Among the firm's top picks are Microsoft, Oracle, and Snowflake.
- Morgan Stanley strategists say the S&P 500 could reach 9,000 next year if tariff-related headwinds ease (i.e., inflation cools and the jobs market rebounds) and investors tolerate a higher valuation of 23 times forward earnings. Among the firm's top picks are Amazon, Astera Labs, and Nvidia.
To reiterate, the targets above represent bull-case estimates, meaning they assume ideal outcomes. But some Wall Street firms have issued strong base-case estimates. Oppenheimer strategists say the S&P 500 will reach 8,100 next year, and top picks include Alphabet, Microsoft, and Nvidia.
However, readers should be aware that Wall Street analysts have a very poor track record when it comes to predicting the S&P 500's performance. During the five-year period from 2020 to 2024, the median year-end forecast for the S&P 500 deviated from the index's actual return by an average of 18 percentage points, according to Goldman Sachs. So, investors should not take a strong 2026 for granted.
