With 2025 officially in the rearview mirror, investors have a lot to be thankful for. Last year, the ageless Dow Jones Industrial Average (^DJI 1.37%), benchmark S&P 500 (^GSPC 1.31%), and growth stock-dependent Nasdaq Composite (^IXIC 1.56%) all rallied to several record-closing highs.
While it wasn't a straight-line climb, as evidenced by the historic turbulence observed on Wall Street during the first week of April, catalysts were abundant. The artificial intelligence (AI) revolution and the emergence of quantum computing have excited growth-focused investors. Meanwhile, corporate earnings growth has largely surpassed analyst expectations.
But investing isn't about reliving the past -- it's about looking to the future.
While nothing is guaranteed on Wall Street, my 27-year investing history, coupled with historical precedent, leads me to make the following 10 stock market predictions for 2026.
Image source: Getty Images.
1. The Dow, S&P 500, and Nasdaq Composite will all endure declines of at least 20%
Although Wall Street's health barometer, the S&P 500, has never had a rolling 20-year period where it's delivered negative total returns, including dividends, getting from Point A to B is usually a bumpy process. In 2026, expect significant volatility, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all likely to fall into a bear market.
According to the S&P 500's Shiller Price-to-Earnings (P/E) Ratio, which is also known as the cyclically adjusted P/E Ratio, or CAPE Ratio, this is the second priciest stock market when back-tested 155 years. The only time the stock market has been pricier is in the months leading up to the bursting of the dot-com bubble.
Since January 1871, there have been only six instances where the Shiller P/E has topped 30, including the present. Following the previous five occurrences, the Dow, S&P 500, and/or Nasdaq lost 20% to 89% of their value, demonstrating that premium valuations aren't tolerated over long periods. This prediction is a wager that history repeats itself in 2026.
2. The Federal Reserve shifts from a stabilizing force to a stock market liability
Arguably, the Federal Reserve is viewed as one of Wall Street's most calming forces. Even though investors may not always agree with the decisions or messages conveyed by the Federal Open Market Committee (FOMC), its members are typically in agreement on how to maximize employment and stabilize prices.
But "typically" doesn't mean always. Each of the last four FOMC meetings has featured dissents from at least one member of the committee. Worse yet, dissenting opinions have been in opposite policy directions in the previous two meetings. There have only been three dissents in opposite directions over the last 35 years -- and we've witnessed two in two months.
Instead of being Wall Street's foundation, the Fed could be a significant liability to stocks in the new year.
The unemployment rate recently climbed to a four-year high. US Unemployment Rate data by YCharts.
3. The dreaded "S" word -- stagflation -- becomes a regular topic of discussion
No matter how well the stock market is performing, there's always a headwind waiting in the wings to potentially drag down equity valuations. In 2026, expect stagflation to, once again, become a regular topic of discussion.
Stagflation is characterized by a period of high inflation and rising unemployment, coupled with stagnant or slowing economic growth. For the Fed, it's a nightmare scenario. Increasing interest rates to curb high inflation can slow economic activity and push the unemployment rate even higher. Conversely, lowering interest rates threatens to send the prevailing rate of inflation even higher.
Excluding the November inflation report, which featured a limited data set due to the longest-ever federal government shutdown, we've been observing the inflation rate and unemployment rate move higher. Some of the necessary elements for stagflation to take shape are in place.
4. The quantum computing bubble will burst
Over the last 30 years, every game-changing tech innovation has endured a bubble-bursting event early in its expansion. These bubbles form because investors overestimate the early adoption, utility, and optimization rate of new technologies.
NYSE: IONQ
Key Data Points
In 2026, I fully expect the quantum computing bubble will burst. While quantum computers offer plenty of intriguing utility on paper, the pure-play companies leading the charge, such as IonQ (IONQ 2.10%), Rigetti Computing (RGTI 4.69%), and D-Wave Quantum (QBTS 4.76%), are still in the early stages of commercializing their quantum computers. It's going to take many years for businesses to figure out how to optimize quantum computing services to increase their sales and profits.
Furthermore, quantum computing stock valuations are otherworldly. Keeping in mind that no company on the leading edge of a next-big-thing tech trend over the last three decades has ever been able to sustain a price-to-sales (P/S) ratio above 30, IonQ, Rigetti Computing, and D-Wave Quantum currently sport respective P/S ratios of 143, 860, and 305!
5. Consumer staples will outperform tech stocks
With the understanding that the stock market is historically pricey, investors are likely to rotate out of sectors with premium valuations and seek out defensive stocks.
On one end of the spectrum, the tech sector is a logical candidate to underperform in the new year. According to data from market research firm Yardeni Research, S&P 500 tech stocks are valued at more than 27 times forward-year earnings per share. This is quite the premium considering the possibility of the AI and/or quantum computing bubbles bursting.
Meanwhile, consumer staples stocks in the S&P 500 are valued at a forward P/E ratio of less than 21. We'd have to go back to the early stages of the COVID-19 pandemic to find the last time the S&P 500's consumer staples stocks had an average forward P/E this far below the average forward P/E for the S&P 500. This suggests that companies providing basic need goods and services will outperform tech stocks in 2026.
6. Meta Platforms becomes Wall Street's blockbuster stock-split stock of 2026
Last year, five prominent companies completed a stock split, none of which was more of a blockbuster than streaming-services provider Netflix (NFLX +0.13%). In mid-November, Netflix enacted a 10-for-1 forward split to make its shares more accessible to retail investors who can't purchase fractional shares through their broker.
NASDAQ: META
Key Data Points
In 2026, the table is set for social media titan Meta Platforms (META 2.42%) to become Wall Street's blockbuster stock-split stock. Meta is unique in that it's the only member of the "Magnificent Seven" that's never completed a stock split.
Meta is attracting more daily active people to its family of apps (an average of 3.54 billion daily in September) than any other social media provider. It boasts dominant ad-pricing power and has a boatload of cash on its balance sheet. In short, its stock is ideally positioned to appreciate over the long run, which makes a forward stock split a very real possibility in the new year.
7. Nvidia ends 2026 as the fourth most valuable public company
Change is a constant on Wall Street. The stock market's largest companies by market cap are regularly changing places, with everything from their operating results to innovative catalysts sparking their rise and fall. In 2026, the face of the AI revolution, Nvidia (NVDA 1.48%), is predicted to fall from the most valuable public company to No. 4.
NASDAQ: NVDA
Key Data Points
Although Nvidia's astronomical growth rate has left little to be desired, competitive pressures are mounting. While most investors are focused on external competitors, the biggest threat for Nvidia, arguably, comes from within. Many of its top customers by net sales are developing graphics processing units (GPUs) or AI solutions to use in their data centers. Even though Nvidia's GPUs are still considerably faster, this internally developed hardware can occupy valuable data center real estate.
Additionally, as I pointed out earlier, every next-big-thing technology eventually endures a bubble-bursting event. Hardware companies, such as Nvidia, which are heavily reliant on AI infrastructure to fuel their growth, would struggle mightily if the AI bubble bursts.
8. Trump's tariffs become a corporate earnings scapegoat
In early April, President Donald Trump unveiled his much-anticipated tariff and trade policy. It featured a 10% global tariff rate, as well as dozens of higher "reciprocal tariffs" on countries deemed to have adverse trade imbalances with the U.S. Multiple trade deals and adjustments have been made to reciprocal tariff rates since this reveal.
But based on what history has to say, Trump's tariffs are likely to make things difficult for corporate America in 2026 (and beyond).
A report by four New York Federal Reserve economists, writing for Liberty Street Economics ("Do Import Tariffs Protect U.S. Firms?"), found that Trump's China tariffs in 2018 and 2019 resulted in average declines in employment, productivity, sales, and profits from 2019 to 2021 for the public companies that were directly affected by these duties.
With input tariffs running the risk of increasing domestic manufacturing costs, expect President Trump's tariffs to be a common earnings scapegoat in 2026.
Image source: Getty Images.
9. Share buyback activity will hit an all-time high
With Trump's tariff and trade policy potentially weighing on corporate earnings in the new year, it seems logical to expect Wall Street's most influential businesses to turn their attention to share buybacks.
Share-repurchase programs serve two key purposes. First, they incentivize long-term investing by incrementally increasing the ownership stake of investors. Secondly, companies with steady or growing net income that buy back their stock and reduce their outstanding share count will see their earnings per share rise over time. In short, buybacks can make a stock more fundamentally attractive to value seekers.
Since the implementation of Trump's Tax Cuts and Jobs Act during his first term in office, which lowered the peak marginal corporate income tax rate to 21% (its lowest level since 1939), public companies have been incentivized to repurchase stock with their extra capital. Expect this to continue, with share buyback activity reaching an all-time high in the new year.
10. We'll witness the largest IPO in history (and it won't be OpenAI)
Last but certainly not least, expect 2026 to feature the largest initial public offering (IPO) in history.
As of this writing, Saudi Arabia's state-owned integrated oil and chemicals behemoth, Saudi Aramco, holds the title of world's largest IPO. Though it doesn't trade on U.S. exchanges, Saudi Aramco raised more than $29 billion, including over-allotments, when it went public in 2019.
While most investors are probably expecting privately held OpenAI to break this record, it's Elon Musk's space transport services company, SpaceX, that should earn its spot atop the pedestal in 2026. SpaceX has already confirmed it's targeting an IPO this year -- OpenAI is still contemplating going public in the latter half of 2026 or perhaps 2027 -- and would likely raise $30 billion or more if it's able to command a valuation of up to $1 trillion.
