How much will the stock market fall in 2026?
Some questions to consider as we approach the New Year with the stock market:
What would the worst draw be? Going back to 1928, the peak-to-trough drawdown in a given calendar year is -16%.
That’s higher than it seems, right?
The medal draw was worse than average in 2025 (-18.9%), 2022 (-25.4%) and 2020 (-33.9%). Peak-to-trough drawdown was better than average in 2024 (-8.5%), 2023 (-10.3%) and 2021 (-5.2%).
Does 2026 look better or worse than that history wall profile?
My guess is that most investors think that 2026 will see a loss of more than 16% at some point because of all the AI stuff.
We will see.
How will the money be returned? Returning in a given year is rare near long-term rates.
A typical annual return is not 8-10% but rather a wide range of big gains or big losses:
A peak year often sees stocks rise by 20% or so.
In fact, the S&P 500 has ended the year up 20% or more in about 4 of its 10 years.
A down year often sees stocks fall by double digits.
The 2020s are a perfect example of this range of returns. Here they are in order: + 18%, + 29%, -18%, + 26%, + 25% and + 17% (so far).
What is more likely – the long-term rate (+ 10%) or the short-term rate (+ 21% or -13%)?
And what is the temporary ratio – up or down?
Will the stock market finish the year down? As of 2020, the S&P 500 has risen 5 out of 6 years.1
As of 2009, it’s 15 of the last 17 years.
Since 2000, the ratio of profits to losses is 20 to 6.
That’s very close to the long-term average of the last 100 years of gains of about 3 years every 4 years.
Most of the time the stock market goes up. Yay!
Sometimes it goes down. Boo!
I think these results depend on your investment situation and human capital.
It is important to note that historical relationships are not set in stone. There is no guarantee that the past will return to the future. That’s what gives the stock market a risk premium.
Neither knows!
I believe this uncertainty is one of the reasons the stock market has a risk premium in the first place.
The stock market could have big gains again in 2026, or it could see big losses.
It is also possible that the market will go through a big pullback on the way to a big gain later in the year.
That’s normal!
My Financial Ethos is based on the idea that you should build an investment plan that can withstand good times and bad, good years and bad, highs and lows.
I don’t know what will happen in 2026.
My best guess is that there will be some volatility, whether the market is up or down.
Michael and I discussed stock market opportunities, opportunities, Disney and more in this week’s spirit paper:
https://www.youtube.com/watch?v=9c65zZ6MC
Subscribe to the compound so you don’t miss an episode.
Further reading:
My market climate for the year
Now here’s what I’ve been reading lately:
Books:
1Thinking about something that doesn’t happen in December. It’s always possible!
This content, which contains security-related opinions and / or information, is provided for informational purposes only and should not be relied on in any way as professional advice, or endorsement of any services. There can be no guarantees or assurances that the views expressed herein will apply to any particular facts or circumstances, and should not be relied upon in any way. You should consult your advisors regarding legal, business, tax, and other matters related to any investment.
Comments on this “Post” (including any related blog, podcasts, videos, and social media) reflect the personal views, opinions, and analysis of Ritholtz Wealce management staff who provide such comments, and should not be considered the opinions of Ritholtz Wealce Management LLC. or contacts or as a description of consulting services provided by Ritholtz Wealce Management management or the return of performance of any Kitholtz Wealce Management Management Cless.
References to any security or digital assets, or performance data, are for illustrative purposes only and are not intended to recommend investing or offer to provide financial advisory services. Charts and graphs are provided for informational purposes only and should not be relied upon when making an investment decision. Past performance is not indicative of future results. The content speaks only from the date indicated. Any assumptions, projections, predictions, guidance, hopes, and/or opinions expressed in these materials are subject to change without notice and may vary or be contrary to the opinions expressed by others.
Compound Media, Inc., an Affiliate of Ritholtz Wealth Management, receives payment from various organizations to receive advertisements in compound podcasts, blogs and emails. The inclusion of such advertisements does not constitute or permit its endorsement, sponsorship or sponsorship, or any association thereof, by the Content Creator or its employees. Investing in real estate involves the risk of loss. For additional advertising incentives see here:
Please see the disclosure here.
